Leasing Terminology

Since the purchase or lease of a vehicle isn't an everyday occurrence, we are providing explanations of some terminology that may be unfamiliar to you.

Leasing

Residual Value. Also known as Guaranteed Future Value, Your lease agreement
states this predetermined value of your vehicle at lease end (you may purchase your vehicle for this amount, or simply turn in your vehicle).

Closed-End Lease. The finance company absorbs any loss if, at lease end, the vehicle is worth less than the predetermined residual value.

Open-End Lease. You absorb any loss if, at lease end, the vehicle is worth less than the predetermined residual value. However, if the vehicle ends up being worth more, you receive the difference.

Capitalized Cost. The negotiated selling price of the vehicle plus anything else in the lease, such as a service contract or life insurance.

Capitalized Cost Reduction/Down Payment. A down payment either cash, rebate, or trade-in amount in excess of what you owe - that reduces your monthly installments.
GAP Insurance. Stands for Guaranteed Auto Protection. If your lease vehicle is stolen or totaled, this guarantees coverage of the difference between your insurance settlement and the financial obligations of your lease agreement.

Mileage Allowance. Most lease contracts include a standard allowance of 12,000
miles annually. You'll owe a set fee for every mile driven in excess of the allowance. Some lease contracts allow you to purchase extra miles up front, costing generally less per mile than each excess mile charge.

Normal vs. Excessive Wear and Tear. Normal usually means small scratches, door dings, stone chips, etc., for which there's no charge at lease end. Excessive usually means larger dents, seat fabric rips, heavily worn tires, glass damage, etc., for which you may be charged.

Conventional Financing

Down Payment.
Cash applied to your vehicle purchase up front, which reduces the amount of money you're borrowing (the principal) and lowers your monthly payment and overall finance charges.
Annual Percentage Rate. A measure of the cost of credit, expressed as a yearly rate.

Method of Calculating Interest. Simple-interest loans are the most advantageous to you because they maximize principal reduction beginning with the first payment. Other loans tailor your initial monthly installments almost entirely toward paying off interest, delaying the bulk of principal reduction.

Credit Life/Disability Insurance. Optional insurance that provides loan repayment coverage in the event of the borrower's death/disability.