Car Leasing Glossary: Essential Terms You Need to Know
Leasing a car involves a lot of industry-specific jargon that can be confusing. This glossary will help you understand the most important terms.
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- Capitalized Cost (Cap Cost)
- Depreciation
- Disposition Fee
- Excess Wear and Tear
- GAP Insurance
- Lease Term
- Money Factor
- MSRP (Manufacturer’s Suggested Retail Price)
- Residual Value
- Security Deposit
Capitalized Cost (Cap Cost)
The capitalized cost is the total price of the car being leased, similar to the purchase price when buying.
Depreciation
Depreciation is the loss of value a car experiences over time.
Disposition Fee
A disposition fee is a charge you pay at the end of the lease if you choose not to buy the car.
Excess Wear and Tear
Leasing companies expect some normal wear and tear, but excessive damage—such as deep scratches, dents, or heavily worn tires—can result in additional charges when you return the car.
GAP Insurance
Guaranteed Asset Protection (GAP) insurance covers the difference between what you owe on your lease and the car’s actual value.
Lease Term
The lease term is the length of your lease agreement, typically 24 to 48 months.
Money Factor
The money factor is the leasing equivalent of an interest rate.
MSRP (Manufacturer’s Suggested Retail Price)
The MSRP is the sticker price of the vehicle set by the manufacturer.
Residual Value
The residual value is the estimated value of the car at the end of the lease.
Security Deposit
Some leasing companies require a security deposit, which is refundable at the end of the lease.