Leasing Terms to Know
Lessee: the customer who is leasing the vehicle; you.
Lessor: the company that owns the vehicle and is leasing the vehicle to the lessee.
Closed-End Lease: also known as Net Lease, Operating Lease, Walk-Away Lease. The monthly payment is fixed at the outset of the lease. At the end of this lease, the Lessee gives the vehicle back to the Lessor, which ends the obligation of the Lessee except for damages or mileage charges for miles driven in excess of the mileage limit stated in the lease. It is the most preferred type of lease, particularly with smaller corporations and individuals, due to the fact that the leasing company guarantees the future value of the vehicle. This allows the Lessee to fix their costs over the term of the lease for budgetary purposes.
Open-End Lease: also known as a Finance Lease, Capital Lease, or TRAC Lease. There is no mileage restriction or wear and tear penalty because at the end of the lease, the Lessee guarantees the value. At the end of this lease, the vehicle is sold and the customer is billed the variance between the residual and the selling price if there is a loss, or credited the profit if there is a gain. In this type of lease, the end of the lease is “open” ended.
Term: the length of the lease in months. This term sometimes means the length of the lease, lease payment, and mileage or other restrictions.
Mileage Cap: the total mileage allowed the Lessee during the length of the lease with a penalty amount if over miles occur. The average individual Lessee drives 15,000-17,000 miles per year and the average commercial vehicle is driven in the range of 20,000 miles per year. Beware, several manufacturers have started marketing leases with very low mileage caps in the 10,000 to 12,000 miles per year range, knowing that the Lessees are going to end up with excess mileage bills around $1,500 at the end of the lease. Don’t be deceived! Sign up for the type of usage you will drive; over miles add up fast.
Residual Value: set in the lease of the vehicle at the end of the lease. Sometimes the Lessee is given the right to purchase the vehicle for this amount at the end of the lease. Do not assume that all leases give the Lessee this right.
Purchase Option: sometimes called Residual. Amount the vehicle can be purchased for at lease end. It can be a Fixed Purchase Option with a specific dollar amount, or a Fair Market Value Option which is not determined until the end of the lease and reflects the current market value.
Disposition Fee: a stated amount that the Lessee must pay if the Lessee does not exercise the option to purchase a vehicle at the lease end value. The use of this fee varies greatly and is missed by many Lessees until the lease is over. GT Leasing does not place disposition fees in the Lease Agreement.
Excess Wear and Tear: At the end of a Closed-End Lease, the Lessee is responsible for wear and tear that is in excess of “normal”. Typically, a clause in the lease spells this out in detail. This can be a subjective opinion without the details and a smart Lessee should make sure that they know what to expect at the end of a lease.
Lease End Adjustment: the credit or bill after the proceeds from the sale of the lease vehicle are applied to the end value or residual at the end of an Open-End Lease.
Capitalized Cost: the total price of the vehicle capitalized by the leasing company after down payments or trade-ins are deducted.
Depreciation: the amount of the monthly payment that goes to amortize the principal. Also refers to the reduction in value of the vehicle due to age, mileage and wear.
CAP Cost Reduction Amount: paid by Lessee at delivery to reduce the CAP Cost and thus reduce the monthly payment.
Security Deposit Money: collected at delivery for security, typically in the range of one monthly payment. The Security Deposit is refunded after the vehicle is returned and sold, minus any lease-end charges for wear and tear or over mileage.