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Lease Definition Breakdown

If you’re ready to lease, you may have questions about some of the terms you’ve come across. Whether you’re unsure about the lease definition or want to know more about the meaning of capitalized cost, the Holiday Automotive finance team can help! The Holiday Automotive finance team has created a guide that covers terms that can sometimes be confusing to car shoppers, so you can better understand your lease agreement.

Common Lease Definitions


Lessee Definition- What’s the difference between the lessor vs. lessee? The lessee is the person who is leasing/using the vehicle.


Lessor Definition- What is a lessor? The lessor meaning is the bank or leasing company that technically owns the vehicle being leased. 


Lease Term- The lease term is the length of the lease in months. Popular lease terms are 36 and 39 months.


Lease Mileage Allowance- The lease mileage allowance is the maximum amount of miles you’ve agreed to use. Common mileage allowances are based on 10,000/year, 12,000/year, and 15,000/year. However, some leases are set as low as 5,000-miles/year or as high as 50,000-miles/year. You can tailor the mileage allowance to your specific driving needs.


MSRP Meaning- Whether you’re buying or leasing, you may have wondered, “What is an MSRP?” The MSRP meaning standards for “Manufacturer Suggested Retail Price” or the “Sticker Price” because its listed on the window label of every new vehicle.


Residual Value- What is residual value? The residual value of a lease is the projected value of the vehicle at the end of the lease term, as set by the leasing company. You can typically purchase the vehicle at the end of the term for this amount (plus any fees).


Capitalized Cost- The amount of money being financed into the lease. You’ll arrive at a Capitalized cost (or “Cap Cost”) by taking the MSRP and subtracting any discounts, rebates, down payment, or trade equity and adding any accessories, protection packages, a trade-in balance, and taxes or fees associated with the lease. The lower this number, the lower your monthly payment.


Capitalized Cost Reduction- Anything that reduces the amount financed; most commonly dealer discounts, manufacturer rebates, trade equity, and down payment.


Dealer Leasing Discounts A reduction in the selling price of the vehicle from the dealer that’s considered in capitalized cost.


Manufacturer Rebates or Lease Cash-An incentive from the manufacturer that can be used to reduce the capitalized cost.


Down Payment or Trade Equity-Included in capitalized cost, you can use a down payment to further reduce your monthly lease payment to your liking. Trade equity does the same thing; if your vehicle is paid for, or if you owe less than it’s worth, you can use that money toward the lease.


Car Depreciation- The difference between the MSRP and the residual value. You can find a car depreciation calculator to help you discover how much your vehicle has depreciated.


Lease Mileage Penalty- The lease mileage penalty is the cost-per-mile of going over your total mileage allowance if the vehicle is turned-in by the lessee (rather than purchased or traded).


Lease Acquisition Fee- What is an acquisition fee? The acquisition fee for car leases is assessed by the leasing company to purchase the vehicle from the dealer and to set up the lease.


Lease Disposition Fee- Are you wondering, “What is a disposition fee?” A lease disposition fee is a fee that may be charged at the end of the term to liquidate the vehicle. This is not customarily charged if the vehicle is purchased or traded-in.


Purchase-Option Fee for Lease- The purchase option fee for a lease may be charged to a lessee if he or she chooses to buy the vehicle from the leasing company.


Learn More About Leasing a New Vehicle Today!

If you’ve been ready to explore leasing a new vehicle, and are in the Oshkosh and Sheboygan area, then schedule an appointment to speak with the team at Holiday Automotive. We can help you decide between leasing vs. buying your next car!

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