Choosing to lease a car can turn out to be your best option in terms of getting a great new vehicle for an affordable monthly cost.

Yet, not everyone who considers this option takes the time to find out about all of the different terms used in this sort of transaction. The following are some of the most important words and phrases that you are likely to come across when you talk about a leasing deal.

Allowable Mileage

It is important to understand right away that you will be given a maximum amount of miles that you can drive each year or over the total duration of the contract. This is typically set at 12,000 miles per year.

Of course, there is nothing to stop you from going over this fixed mileage allowance if you drive more each year. However, you may have to pay a hefty fee if you go over this limit, with the cost often set at up to 15 cents for each additional mile driven.

Capitalized Cost

Also referred to as “cap cost,” these are basically all just slightly different names for the same thing. The capitalized cost of your loan vehicle is simply the total cost of the car.

This figure is used to work out the price that you will pay for the car. You could look at it as being similar to the purchase value when the car is being bought instead of leased.

Capitalized Cost Reduction

Following on from the last term, this is the phrase that is typically used when referring to the down payment that you make. The general idea here is that the bigger the payment you make at the beginning the lower your monthly payments will be.

If you are trading in an old car then this may also help you to get a sizeable reduction and, therefore, lower ongoing payments.

Closed-End Lease

This type of car lease has the residual value of the vehicle fixed at the outset and written into the contract. What this means is that you won’t run the risk of having to pay more at the end of the term because the value of the car has dropped more than was expected.

The majority of car leasing deals these days are carried out on this basis.


This is the way in which the car loses value over time. You are probably aware of the importance of depreciation when buying a car, but did you know that it also comes into play when leasing too?

In terms of leasing, this is the amount that reflects the value lost on the car during the term of the lease.

Car Leasing Fees

Acquisition fees, disposition fees, and drive-off fees are among the charges that you are likely to come across. You make be asked to pay out for other fees too.

A great idea is to use an auto broker to find the best leasing deal for you. In this way, you will feel confident that you aren’t being over-charged or paying fees that shouldn’t apply.

Early Car Lease Termination

What if you want to terminate the leasing deal early for some reason? In this case, you may need to pay out a fairly high cost.

The size of the fee for early termination is definitely a point that you will want to check out before signing up for any contract.

Car Lease Buyout

What if you love the car so much that you want to keep it once the term is over? All of the above phrases are used to refer to this option.

The fact that you pay a security deposit means that the purchase option price will be different from the residual value.

Excess Wear and Tear

Ideally, you will return the car in perfect condition without any problems. Yet, it could be that there is significant damage to the vehicle or else maintenance hasn’t been carried out properly.

In this case, you may need to pay a fee out of your security deposit. It is definitely worth taking as much care with this car as you would with your own.

GAP Insurance

If you are very unlucky then your insurance cover won’t give you the full value of the vehicle if it is stolen or totaled. This is where gap insurance can be extremely useful.

This type of insurance bridges the gap between your insurance payout and what you need to pay to the leasing company.


As the person who is leasing a car, you will be the lessee.


This is the term used to describe the company leasing the car to you. If may be a dealership, a bank, or a car manufacturer.

Money Factor

Also referred to as “lease factor” or “lease fee,” the money factor appears on your contract to help work out the monthly payments. You can use this figure to work out the interest rate that you are paying.

Simply divide the money factor by 2,400 to see the interest rate.

Security Deposit

As mentioned earlier, you will pay a security deposit at the start and this will be used to pay for any excess wear and tear or other issues. It is typically refundable but you will want to check the details on this before signing.

Expect the deposit amount to be the same as a single monthly payment. Having said that, you may be able to increase the deposit to lower your monthly payments.

Subvented Lease

Also referred to as “subsidized lease,” this is usually a car leasing deal on better than normal terms. An auto manufacturer will do this by offering the likes of a low interest rate or perhaps boosting the residual value.

A subvented lease will make for a more attractive deal that gives you lower monthly payments.

Term (of a Lease)

The term of a lease has already been mentioned a few times and the meaning should be fairly clear by now. However, it is worth pointing out that typical terms for car leasing include 2 years, 3 years, 4 years, and 5 years.

A 3 year deal is the most common and it is typically seen as being suitable for most customers.


By understanding these commonly used car leasing terms you will be able to get to grips with exactly what any deal offers you. In this way, you can enter into a leasing contract confident that it is perfect for your needs and financial situation.