The rate that a car dealer gets financing. This rate is usually beefed up for the consumer by as much as 1% (the Sell Rate). The dealer keeps the difference between the Buy Rate and the Sell Rate. This is known as a Spread. Also known as Bump or Bump Rate.
The cost of buying a car at the end of the lease term, which is usually the residual value of the vehicle. You need to look closely at the costs of buying the car outright versus the cost of purchasing after the lease is up. Dealers can offer a low residual/low money factor lease but it’s rare.
Capitalized Cost or Net Capitalized Cost
This is the total amount (including car cost and any options) that you will be financing. The rule of thumb is that the lower this number is, the less your monthly payment will be.
Cap Cost Reduction
In leasing or buying this is a specific amount of money you put down on a car to reduce the payments over the life of the loan. It is usually put down up front as cash but can be put down as the value of a trade in or rebate amount. Sometimes cap cost reductions are required to get a specific lease term or interest rate. This term can apply to either new or used cars.
Closed-Ended Lease or Walk-Away Lease
At the end of a lease you have the option to buy the car at a set and agreed upon price or walk away without any kind of obligation or liability. It’s always a good idea to verify that your lease is closed-ended.
Cost of Funds or Financing Costs
The APR, money factor, or rent charge. This is the cost for using a bank’s money to get the car. This is a term that is occasionally used—but not often.
Dealer Installed Option
Optional equipment installed by the dealer, not the manufacturer or an aftermarket shop. Dealer installed options could include things like undercoating, fabric protection, some appearance accessories, performance accessories. Many of these things are added on once the negotiation of base price has taken place. Be careful of these because some are unnecessary, and many can be negotiated.
These are offers from the manufacturers, passed through to dealers to get sales going and encourage specific makes and models to sell. These are usually passed through to the customer. Be sure to ask if there are any dealer incentives available on cars you are interested in purchasing.
Not making your payments or abiding by the terms of the lease or buying agreement. If you default on your loan your credit will take a major hit. You want to avoid going into default on any financial obligation you make. There are also Default Fees that can be charged to your account if you don’t make your payments as the lease or loan stipulate.
The decrease of a vehicle’s market value over time.
The money you put down up-front to reduce the amount you are financing. This can reduce your monthly payments. Usually a typical down payment is roughly 20% of the sale price of the car.
The value left in a used vehicle after subtracting the remaining loan balance from its market value.
Equity Lease or Open End Lease
A lease where you must buy the vehicle at the end of the lease. It’s not a common type of lease but they do exist. In an open-ended lease there sometimes is an amount that the lessee will pay at the end of the lease that covers the difference between the vehicle’s residual value and the actual market value. This is known as an End of Lease Payment.
Excess Mileage Charge
This applies if you’re leasing a vehicle. If you go over the mileage agreed to on your lease (typically 10,000/year, 12,000/yr, or 15,000/yr) you’ll have to pay a per-mile fee for the number of miles you go over. To avoid this, be realistic about how many miles you’ll put on a leased car per year.
Excess Wear Charge
A fee paid at the close of a lease if the car is returned with lots of damage or modifications. Things you could be charged for include tinted windows, different wheels, dings and dents, bad smells in the interior, etc.
Fair Market Value
The value of a vehicle on the market in its current condition. Use things like TrueCar, Edmunds, and Kelley Blue Book to determine the Fair Market Value of a new or used car.
Fixed (Guaranteed) Residual
A set price that is agreed to at the start of a lease. This is a price you can purchase the car for, at the end of the lease. Be careful of deals like this as it’s not often that it works out in a buyer’s favor.
This is a lot like a long-term rental. It’s a fixed, long-term contract which allows you to use the car without owning it. You can use the vehicle for a set period of time, or agreed number of miles, and are required to make payments to the lender for the use of the car. At the culmination of the lease you can either buy the car or return it to the dealer depending on the terms of the agreement. You pay for the portion of the vehicle’s life that you use, which usually means that leases are more affordable than buying a car.
An agreement between the buyer and seller to continue the lease beyond the original terms without changing the monthly payment.
The amount you are required, by contract, to pay to the lender monthly for the use of the vehicle. Usually this number is the sum of the rent charge, depreciation of the vehicle plus applicable taxes. To calculate the lease payment you’ll need the MSRP (sticker price or agreed upon price), the money factor (or interest rate), lease term, and the residual value of the car.
The person leasing the car.
The financing company or bank that loans out the money for the lease. This is the company or entity that actually owns the car even when you are leasing it.
Lock or Lock in
Getting a commitment from the lender to hold specific terms of a loan or lease for a set amount of time, before committing to a sale or lease. Usually a lock lasts from the time that you apply for the loan until you sign the paperwork and get the money you borrowed.
The max distance you can drive your leased vehicle before incurring additional charges. Those charges are usually calculated as a price per mile.
See also Lease Payment and APR. This is essentially an annual percentage rate for a lease. It usually makes an appearance in the form of a small decimal number. To figure out what the interest rate is, multiply the decimal number by 24. For example if you see a money factor of 0.0025 multiply it by 24 to get 6%. Watch out because sometimes dealers write money factors as a larger decimal figure. Say you see a money factor of 2.5—that is in fact a money factor of 0.0025 or 6%. Dealers do this to disguise them as low interest rates.
MSRP or Manufacturer’s Suggested Retail Price
The suggested selling price of the vehicle found on the Monroney or window sticker. This does not usually include destination charges, optional equipment or taxes.
When the amount owed on a vehicle is more than its market value.
Open End Lease
Usually only offered to fleets or companies that are buying or leasing a large number of vehicles, this kind of lease makes you responsible for the difference between the residual and the fair market value of the vehicle at the end of the lease.
The right to purchase a car at the end of a lease or loan for a set cost. This can be negotiated.
The estimated remaining value of a car when it comes back to a dealer or to the market. This number is used to calculate the monthly payment and the price you can buy the car at, at the end of the lease.
Truth in Leasing
The Consumer Leasing Act of 1976 which was designed to protect consumes from inadequate or misleading lease information.
A lease that gives the lessee the option to buy or walk away without liability at the end of the lease term. Though it’s the most common kind of lease, always verify that your lease is a walk-away lease.