The Language of Auto Leasing

Auto leasing programs are simply modified version of business leases and that explains why there are so many confusing vocabularies in auto leasing today. Understanding these somewhat complicated terminologies can help you through confusing process. Here are some leasing terms with their definitions.

Acquisition Fee:
This fee covers the cost of preparing and servicing your lease.

Amount to be amortized:
This is the difference between the Net Leased Vehicle Amount and the Residual Value which represents the Depreciation that you pay over the term of your lease.
For example:
This is calculated as follows:
Net Leased Vehicle Amount $ 50,000
- Residual Value $-28,000
= Amount to be Amortized $ 22,000

Annual Percentage Rate:
The Total Lease Charges expressed as an annual rate.

Depreciation:
This is the loss in the vehicle’s value that occurs over time. The more you drive it, and the longer you keep the vehicle, the more the vehicle will depreciate.

Excess Kilometer Charge:
The additional cost if you drive your vehicle more kilometers than the maximum stated on your lease.

Leased Vehicle Amount:
This is the amount you and the leasing company agree on for the vehicle.

Residual Value:
This is one of the most important leasing terms and it is the estimated wholesale value of the vehicle at the end of your lease which means that the higher the residual value, the lower your monthly payments.

Early Termination:
This means you want to get out of the lease contract before all your payments have been made. For instance, if you are sick of driving the same car or you cannot simply afford it, you decided to terminate the lease. However, just like the home mortgage, you must pay a penalty to the leasing company. If you want to avoid this penalty, you might try finding someone to take your lease over.

Buyout Amount:
At the end of your lease contract, you can buyout your leased vehicle if you want to and buyout amount is the amount of money you have to pay to own the car.

As I mentioned above, knowing this leasing terminologies will significantly help you when you decided to lease your future vehicle.