Automobile Leasing Glossary

Amortisation

The total amount lessee is responsible for the use of the vehicle before interest and taxes. (Net Vehicle Leased Amount - Residual).

Closed-end Lease

The most common type of lease in which the residual is set and the lessee has the option to purchase the vehicle at that price when the lease ends. Lessee can simply return the vehicle at lease-end without any risks. GAP insurance is usually included.

Depreciation

Decline in the value of vehicle over the term of the lease or a set time period. Calculated by taking the difference between leased vehicle amount (selling price) and residual.

Disposition Fee

Fee charged by the lessor if the lessee does not purchase the vehicle at lease-end, for costs associated with preparing the vehicle for resale and selling the vehicle. The disposition fee must be disclosed in the lease agreement.

Excess KM Penalty

Penalty applicable when the lessee has driven over the KM limit, normally ranging from 6 to 25 cents per KM.

GAP Insurance (Guaranteed Asset Protection)

In the event of total loss of the vehicle, the insurance coverage pays only the fair market value of the car minus the deductible. Such coverage is normally not sufficient to cover the financial obligation of the lessee. GAP covers this difference between the financial obligation and the insurance settlement.

KM Limit

Total kilometres that may be driven on a leased vehicle before excess KM penalty applies.

Lease Assumption

The act in which new driver assumes a car lease, taking on the contractual obligation stated in the lease including monthly payments, excess wear and tear, and returning the vehicle at lease expiration.

Lease Expiration

Date when the lease ends and the lessee is to return the vehicle to a dealer or make the purchase option.

Lease Rate

The interest rate applied on top of the amount of depreciation for the duration of the lease to calculate the monthly payment.

Lease Transfer

Transfer of the lease obligation from the current lessee to a new lessee.

Leased Vehicle Amount (Selling Price)

The selling price of the vehicle agreed between car buyer and dealer.

Lessee

The user of the leased vehicle.

Lessor

The owner of the leased vehicle, usually the finance company such as GMAC, Ford Credit, VW Finance etc.

Net Leased Vehicle Amount

Net price of the vehicle after subtracting trade-in, incentives and down payment. Used for determination of depreciation and monthly payments.

Open-end Lease

Another type of lease in which the lesee is responsible for the value of the car at the end of the lease. If the market price of the car is lower than the pre-determined residual, then the lessee has to pay the difference. If market value is higher, then you can buy the vehicle at the residual and re-sell it on the market. GAP may not be included.

Residual/Option-to-Buy Price

Percentage of the Leased Vehicle Amount or a set dollar value for how much the vehicle is worth at the end of the lease. The lessee has the option to purchase the vehicle at this specified price when the lease ends. One factor used the calculating the monthly payment of the lease.

Security Deposit

A refundable dollar amount paid to the finance company at the commencement of the lease. Funds is used to pay for potential excess wear and tear or excess KM penalties.

Term

The duration of a lease in which the lessee has agreed to use and pay for the usage of the vehicle.