LEASING TERMINOLOGY

Glossary of Terms

Lease
An agreement under which the vehicle owner (the lessor) permits it’s use by a customer(s) (the lessee) for an agreed amount & period of time (the term).

Lessor
The owner of the vehicle being leased.

Lessee
The user of the vehicle being leased.

Open-end Lease
An agreement where the lessee has the financial responsibility to the lessor for all monthly payments, the residual value or buyout value. The buyout represents the unfinanced portion of the lease. At lease end, the lessee normally can buy the vehicle or ask the lessor to sell it. In both cases, any amount of the sale in excess of the buyout is the lessee’s. Any shortfall must be made up by the lessee. 

Closed-end Lease
A lease that allows the lessee to return the vehicle at the end of the lease term with no further financial obligation, assuming that the lessee has complied with all of the terms of the lease. The lessee may be responsible for a disposition fee, if it is part of the lease agreement. There may be additional charges according to the terms of the lease for any excess kilometre or excess wear. The lessee is not responsible for any difference between the residual value, as stated in the lease, and the actual value of the vehicle at the end of the lease.

Low Kilometre Lease
A lease designed for people who drive less than 20,000 kms per year, thereby providing additional savings over a regular lease.

Sub - Lease 
The ability to lease a vehicle to a (new party) who qualifies under the leasing companies guidelines and credit conditions.

Lease Extension
The ability to extend a lease for various periods  of time with certain lessor criteria involved.

Lease Term
The length of time covered by the lease agreement

Annual Percentage Rate
The interest rate used in the calculation of the monthly lease payment.

Capitalized Cost
Commonly referred to as the Cap Cost, which is the lease price of the vehicle.

Capitalized-cost Reduction
The total of any cash payment, trade-in allowance or rebate used to reduce the gross capitalized cost. The capitalized reduction is subtracted from the gross capitalized cost to get the adjusted capitalized cost.

Residual Value
An estimate of the vehicle’s worth at lease-end as determined by the lessor for the purpose of calculating the monthly lease payment. Residual values vary by term and for different make and models depending on predicted rates of depreciation.

Gap Protection Coverage
A type of insurance coverage that covers the difference between the payoff of the lease and the amount covered by other insurance coverage, when a vehicle is damaged or stolen. You are not responsible for any additional charges or shortfall other than your insurance deductible providing that you have fulfilled all of your contract obligations prior to the accident or theft of the leased vehicle.

Purchase Option
The lessee’s right to purchase the leased vehicle, either at the end of the lease or during the lease term, as specified in the lease agreement based on the standing of your account.

Security Deposit
A refundable deposit that you pay at the time of lease signing. Interest is not paid on a security deposit. It may be used to pay excess kilometre charges or other fees at the end of the lease term.

Kilometre Allowance or Kilometre Limit
The total amount of kilometres the vehicle may be driven over the term of the lease, without incurring liability for additional kilometre charges.

Excess Kilometre Charge
A fee charged for each kilometre in excess of the predetermined kilometre stipulated in the lease agreement.

Depreciation of Vehicle
The estimated value of the vehicle at the end of the lease, which will reduce due to time, kms, and condition of vehicle on return of vehicle at the end of the lease.

Administration Fee
A fee charged by the lessor to cover the administrative costs of preparing, approving and administrating the lease.

Adjusted Capitalized Cost
The amount capitalized at the beginning of the lease, after adding any fees or other charge to be included, and subtracting any capitalized cost reductions, such as rebates, trade-in allowances and cash reductions.

MSRP
The Manufacturer’s suggested retail price.

Early Termination
Ending a lease before the scheduled termination date. The lessee will typically be required to pay an early termination charge as described in the lease agreement.

Early Termination Charge
The fee charged to a lessee in the event of an early termination of a lease. Penalties vary from lease to lease and the method of calculation is determined at lease inception and explained in the lease agreement.

Early Termination Payoff
The total amount the lessee owes if the lease is terminated early, before subtracting any credit for the value of the vehicle. The payoff is calculated as described in the lease agreement.

Excess Wear & Use
A section of the lease agreement that establishes you, the lessee, as responsible for the expense to repair or replace vehicle parts which are worn or damaged beyond what is considered normal. Some examples of excess wear and use include: broken or missing parts, torn or stained fabric, broken glass, etc.