Once you’ve decided to lease a car, you may want to equip yourself with the jargon that comes along with it. After reading this article, the next time you meet with your friends or dealer you will be fluent in basic car leasing terms. After all, they must know that you mean business and aren’t fooling around. Here is a list of a few terms you should acquaint yourself with if you’re looking to leave an impression!

1)    Acquisition fees

This is also referred to as the ‘bank fee’ or the ‘administrative fee.’ This account for the charge leasing companies takes for arranging the lease. This is more like an arrangement fee and can either be paid downright or in monthly installments. Not every company asks for this.

2)    Capitalized cost

This is essentially the price of the car that you’ll negotiate for and will pay over the upcoming months. The lower the cost, the lower the fee you’ll pay monthly. Furthermore, it is always recommended that when negotiating this cost, negotiate as if you’re planning to buy the car.

3)    Capitalized cost reduction

This is the payment made which decreases the capitalized cost. It is done via down payment, trade-in allowances or rebates. For example, if your capitalized cost is $30,000 and you pay $5000 as down-payment, then the new capitalized cost is $25,000.

4)    Depreciation

This is the loss of value of any given vehicle in a period. The amount of money you’ll pay when leasing a car is often calculated keeping the depreciation in mind.

5)    Residual

This is the value of the vehicle after the lease is complete. Additionally, if you subtract your lease payments from the original value of the car, you’ll have the residual value. This is used later on for further transactions and dealings of the car.

6)    Term

This is the number of months or payments you will be making for your car. It is always recommended to keep the term low since that means that you’ll be paying minimal interest.

7)    Lessor/lessee

The former is the one providing the lease; the latter is the one who is applying for the least (you)

8)    Money factor

This is the interest rate which is calculated in an unorthodox manner. It is depicted by a number which is to about three decimal places, such as 0.004. This number is further multiplied with 2400. The following answer, denoted with a percentage sign, is the interest rate that will be charged.

9)    GAP insurance

Though not offered by all leasing companies, this is quite important and should be opted for if given the opportunity. This insurance covers the cost of the car if it is was stolen or if the car is in an accident.

10)    Disposition charge

Leasing companies add this to the fee. This accounts for the cleaning and touch-up of the vehicle after the lease has ended so that it can be further used for business.


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