You've finally said sayonara to your old, worn-out ride, vowing never to cling onto a vehicle for that long again. It's time to lease your dream car! As luck would have it, a charming salesperson greets you and offers a test drive. You rev the engine. You're smitten—it feels like swiping right on your perfect match on Tinder, but with wheels. Yet, as your excitement soars, the salesperson starts tossing around phrases like 'money factor', ‘capitalized cost’ and 'residual value.' You ask for some clarification, but end up more confused than before. Suddenly, you see 'yellow flags’ everywhere. Does this ring a bell?

Leasing a car is a huge financial commitment, and it's essential to understand what you're getting into. 

But how can you make confident decisions when it feels like terms are being thrown around to push for unneeded upgrades? That's why we've compiled 35 terms to help you translate the leasing language into everyday English and share a helpful tip to keep more money in your pocket.

The A to Z(evvy) Leasing Glossary: Common Car Lease Terms You Should Know

Heading into a car dealership without the right preparation is like walking into a lion's den. Without understanding the lingo, it can be tough to see beyond that charming salesperson's pitch to get a clear picture of the deal. 

Equipped with these terms, you'll be able to navigate leasing conversations, decipher transaction documents, and sidestep hidden costs. The simple act of reading this guide has already put you ahead of most people going into dealerships.

Acquisition Fee (or Bank Fee or Initiation Fee)

A small initial fee charged by the leasing company to start the lease. 

Adjusted (or Net) Capitalized Cost

The gross capitalized cost minus the capitalized cost reduction. It's the total amount after any down payments or trade-ins.

Capitalized Cost Reduction

An upfront payment that reduces the total leasing cost. It's a strategy to lower your monthly payments. And there are several ways to do this:

• Trade in a vehicle

• Use manufacturer’s deals or rebates 

• Make a larger down payment

• Opt for shorter lease terms

Base Monthly Payment

The portion of your monthly payment that covers the car's value loss and any other costs spread over the lease term.

Depreciation

The value your car loses over the lease term, considering factors such as age, mileage, and market conditions.

Dealer Preparation Fee (or Prep Fee)

A fee charged by dealers to prepare and detail the car before leasing it.

Disposition Fee (or Disposal Fee or Termination Fee)

A fee you pay at the end of the lease for the cost of preparing the car for resale.

Early Termination

Ending the lease contract before the scheduled end date. This usually comes with substantial penalties.

Excess Mileage Charge (or Overage Fee)

A fee for exceeding the set mileage limit specified in your lease agreement.

Note: Traditional leases often impose a limit on the number of miles allowed per year (usually in the 10,000-15,000 range) and charge up to 50 cents per mile for any excess mileage. Tesla, for example, charges a 25-cent per mile overage fee if you exceed your contracted annual mileage, which can really add up.

Here’s an example: With Tesla's overage fee of $0.25 per mile, the extra cost for 3,000 excess miles would be:

3,000 miles * $0.25/mile = A whopping $750!

In contrast, Zevvy's 1,000 monthly included miles, unlimited driving and low per-mile fee structure allow for maximum flexibility and cost savings for drivers, setting it apart from traditional leases (even those from an innovative company like Tesla).

Excessive Wear-and-Tear Fee

Charges for damage to the car beyond normal use. This may include things like major dents, deep scratches, or interior damage.

GAP (Guaranteed Auto Protection) Insurance

Optional insurance that covers the difference between the car's actual value and what you still owe on the lease in case of theft or total loss.

Gross Capitalized Cost

The total cost of the vehicle, including the price of the car and any additional charges or fees.

Inception/Lease Inception

The start of the lease agreement, when all the upfront costs are paid.

Inception Fees

Fees paid at the start of the lease. These could include the first month's payment, a security deposit, and other initial fees.

Indemnity

A term referring to financial compensation for a loss or damage during the lease term.

Lease Fee or Charge (or Implied Interest)

Similar to interest on a loan, it's the cost of borrowing money to lease a car.

Lessee

The person or entity leasing the car.

Lessor

The entity or individual that owns the leased car, usually a bank or leasing company.

Mileage Allowance

The maximum number of miles allowed in a lease. If you exceed this limit, you'll be charged an excess mileage fee or overage charge. In a traditional lease, you might be given a monthly allowance (e.g., 833 miles/month). However, some services such as Zevvy do not have mileage caps. For example, with Zevvy, you get 1,000 miles included and a low per mile fee of $0.13 per mile if you exceed that, which is typically far less than the per-mile charges of traditional leases.

Money Factor (or Interest Rate)

Think of the money factor as the lease equivalent of an interest rate. This negotiable element significantly influences your monthly lease payments.

Caution: Dealers may increase this rate while reducing the vehicle's sale price, creating an illusion of a good deal. If you come across the term 'MF' in leasing documents, multiply it by 2,400 to determine the Annual Percentage Rate (APR).

Suppose the given money factor is .00150, here's how it works: .00150 x 2,400 = 3.6%. If the result surpasses the current APRs for car purchases, it's a clear indication the dealer has inflated the money factor. In such instances, there's definitely room for negotiation!

Regulation M (RegM)

A federal regulation governing leasing disclosures, designed to make lease costs more transparent.

Rent Charge

The total amount of interest you'll pay over the lease term. It's essentially the cost of financing the lease.

Residual Value

The estimated value of the car at the end of the lease. It's the price you would pay if you decide to buy the car at the end of the lease.

Security Deposit

A refundable deposit you pay at the start of the lease to cover potential damage or excess mileage.

Exploring Different Lease Types

Did you know that when it comes to car leases, there's more than one type to choose from? Leasing a car isn't a one-size-fits-all approach—it's like exploring a menu of options, each lease type offering its unique perks and considerations. Whether you're intrigued by the flexibility of an open-end lease, the affordability of a subvented lease, the convenience of a single payment lease, or the value of a used lease, understanding the differences allows you to budget effectively and evaluate the overall cost of leasing a car.

Closed-End Lease

This type of lease agreement lets you set a fixed rate, term, and mileage for the vehicle. Once the lease ends, you're not obligated to buy the car or shoulder depreciation risks. Sometimes referred to as a "walkaway lease," this option is ideal if you prefer a no-strings-attached contract. Closed-end leases are typically chosen by general consumers rather than businesses.

Drawback: You'll be responsible for costs associated with any excess wear and tear to the car, and you'll face a fee if you want to exit the agreement early.

Open-End Lease

An open-end lease provides more flexibility than a closed-end lease. With this arrangement, you can keep the car for as long as you need without a set mileage limit. However, at the end of the lease, you'll need to make a balloon payment to cover the difference between the car's residual value and its fair market price. This type of lease is commonly chosen for commercial transactions.

Drawback: If the car loses value over time, you'll have to cover that cost.

Subvented Lease

Sometimes, a marketing promotion or good deal can provide the opportunity to lease a car at a reduced price. This could come in various forms: manufacturer discounts for less in-demand or older models, lower base interest rates or down payments from rebates, or higher residual values.

Single-Payment Lease

If you have the funds upfront and prefer not to deal with monthly payments, a single-payment lease might be for you. This lease allows you to pay for your car lease in one lump-sum payment. Some dealers offer discounts for single-payment leases, allowing you to save a certain amount of money if you pay upfront.

Used Lease

If you only need a car for a few years and want a cheaper option, leasing a used car could be your best choice. This could involve taking over a lease from a current leaseholder or leasing a certified pre-owned (CPO) car.

Zevvy Lease

If you want to enjoy a new car every six months and are looking for a cheaper and easier way, Zevvy Lease could be just right for you. With Zevvy, you can start a lease for as short as six months, with no limit on how much you drive and less money needed upfront and every month. Plus, if you decide to buy the car, all the mileage fees you've paid for gets taken off the vehicle price.

What’s the best lease type for you? 

To illustrate each concept, let's consider a hypothetical scenario where a person (the lessee) has a credit score of 700, resulting in an average interest rate of around 6.58% for new cars and 11.17% for used cars​​. The lease terms are set at an average of 36 months, and the lender set a residual value of $21,000​​. Now, let's compare the different financing options for acquiring a car with a Manufacturer's Suggested Retail Price (MSRP) of $30,000. 

*Please note that these are hypothetical numbers to illustrate the different lease concepts and the actual cost will depend on various factors like credit score, interest rates, lease terms, and vehicle condition. We also haven’t included taxes and registration fees, or any excess mileage fees that might be accrued in a traditional lease.

Advantages of Leasing a Car in San Francisco

In 2022, leasing accounted for 18% of new car transactions, a significant dip compared to the year before. The cause? The rigid structure and economic pressure of traditional leases—hefty overage charges, significant upfront costs, and a lack of ownership choices.

However, if you're a Bay Area resident, innovative leasing companies like Zevvy are transforming the leasing game and offering some unique perks:

• Low commitment: customizable lease length, starting at just six months 

• More affordable: much lower upfront payment with EV incentives baked in

• No mileage caps: 1k monthly miles included + a low per-mile fee for anything over 1k

• True ‘try before you buy’: options to renew, return, or purchase (with all mileage fees deducted from the purchase price)

• EV expertise: a team of EV support specialists

“Going through their program, a driver starts with a six-month lease on a vehicle. The payment is a fixed amount, plus a small amount for every mile they drive, with no cap on how many miles can be driven per month – a high contrast to a traditional lease. This method makes it cheaper per month than traditional loans, and the per-mile cost ends up being considerably cheaper than filling up an internal combustion engine.” U.S News

Ready to lease your next vehicle? Explore Zevvy’s impressive range of electric vehicles right here.