If you are going to get a car on lease and are not aware of any terminologies related to car leasing then you can get into trouble. But you need not worry, as we are here to teach your a few Car Leasing Terminology.

What Is Car Leasing?

When you lease a car, you pay monthly to drive a vehicle. At the end of the lease agreement, you return the vehicle to the dealership. Unlike when you buy a car, you don’t own a leased vehicle. Essentially, car leasing is renting a car for a short or long period.

The length of the lease and how much you pay monthly depend on your specific lease agreement. Your lease agreement will require you to make monthly payments. At the end of the lease, you might have the option to buy out the vehicle if you want to keep it.

Car Leasing Terminology Before Leasing a Car

Before you go for leasing a car it is crucial to know some car leasing terminology which will help you in a long run

Open-End vs. Closed-End Lease

Leases have two kinds of terms, either open-end or closed-end terms. An open-ended lease means the dealer will calculate the value of the car after you return it at the end of the lease. If you maintain it well and it’s worth more than expected, you could receive a refund. If the car’s residual value is worth less than expected, you could be subject to wear and tear fees and have to pay hefty penalties.

A closed-end lease means the value of the car doesn’t matter when you return it. You shouldn’t owe any extra fees when returning the vehicle, as long as you didn’t exceed the mileage allowance.

Residual Value

Before you begin a lease agreement, the dealership will determine your vehicle’s residual value. The residual value refers to the estimated value of your vehicle at the end of your lease. As long as you choose a closed-end lease, this number doesn’t mean much to you. The dealership is responsible for any unexpected changes in the vehicle’s residual value.

Car Leasing Terminology

Disposition Fee

At the end of the lease period, if you choose not to buy the car, you will be required to pay a disposition fee, also known as a termination or disposal fee. This includes administration charges and the cost of preparing the vehicle for resale. Make sure that this fee is clearly stated in your lease contract at the beginning.

As well as the disposition fee, you might incur wear and tear charges if the vehicle has damage that is beyond what is considered normal or reasonable. These charges should also be defined in the contract. In some cases, you can add a small amount to your monthly payment to exempt yourself from a certain amount of wear and tear charges.

Rent Charge

The rent charge is what dealers refer to as the cost of leasing the vehicle. This is similar to the annual percentage rate, or APR. The rent charge might also be called the “money factor.” The lower the money factor you qualify for, the lower monthly lease payment you can expect.

Capitalized Cost

Capitalized cost, sometimes referred to as cap cost, is how lenders calculate your lease payments. Leasing a car with a lower cap cost means your monthly lease payments will be lower. The cap cost might be similar to the manufacturer’s suggested retail price, or MSRP.

Mileage Limit

Most leases have mileage limits. Your mileage limit will depend on the total length of your car lease. Longer leases come with a higher mileage allowance. If you exceed your car’s mileage limit, you can pay a hefty fee per mile. This is why it’s a good idea to predict your mileage use before signing a lease because you can’t add or buy miles in the middle of a lease.

Acquisition Fee

The acquisition fee is the price the lender charges to originate or close the loan. This administrative fee is common with any leased vehicle. While you can expect most lenders to charge some type of an acquisition fee, it shouldn’t exceed more than a couple hundred dollars.

Conclusion: Car Leasing Terminology

Car Leasing can be quite cumbersome but with the right information one can deal with it smoothly. Hope above Car Leasing Terminology helps you get the best deal on your dream car.

Read More: What is Car Leasing and Its Requirements?

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