Glossary

Click on one of these common car terms for a "plain English" explanation:

Acquisition Fee APR (Annual Percentage Rate) Capitalized Cost Cap Cost Reduction Captive Finance Company Closed-End Lease Consumer Lease Dealer Discount Depreciation Disposition Fee Document Fee Down Payment GAP Protection Independent Leasing Company Initiation Fee	Lessee Lessor Manufacturer's Suggested Retail Price (MSRP) Open-End Lease Preparation Fee Rent Charge Residual Value Single-Payment Lease Total Contractual Obligation Trade-In Allowance

Acquisition Fee
A fee charged by your lending institution to cover the expenses incurred for things such as credit reports, insurance verification, and processing of the application.

APR (Annual Percentage Rate)
The percentage of interest you pay for one year on the unpaid balance of a loan. APR applies to vehicle loans but not to leases.

Capitalized Cost
The equivalent of the purchase price of a leased vehicle. Whereas a new car has a "price," a leased vehicle has a "capitalized cost" (the amount that accrues interest).

Cap Cost Reduction
Refers to a variety of ways to reduce the capitalized cost, such as a rebate, trade-in, or down payment.

Captive Finance Company
A financial organization that is affiliated with an automotive manufacturer or distributor. General Motors Acceptance Corporation, or GMAC, is an example. (See Independent Leasing Company.)

Closed-End Lease
A lease where the consumer is not liable for the vehicle's projected value (at lease's inception) and its actual value (at lease's end). The consumer is, however, liable for excessive wear and mileage. (See Open-End Lease.)

Consumer Lease
A lease to an individual who intends to use the vehicle primarily for personal, family, or household use, rather than for business. A consumer lease can have a total contractual obligation of no more than $25,000.

Dealer Discount
Any amount with which the dealer reduces the manufacturer's suggested retail price.

Depreciation
A vehicle's decline in value over a period of time.

Disposition Fee
A fee charged by most lessors to cover the expense of preparing and reselling (or auctioning) a leased vehicle at the end of its lease. Also known as Termination Fee.

Document Fee
A fee charged by some dealers to cover the cost of preparing lease documents.

Down Payment
The cash you give to the dealer or lessor to reduce the vehicle's price. It's a type of Cap Cost Reduction.

GAP Protection
Insurance coverage to pay for future lease payments in the event your vehicle is stolen or totaled in an accident.

Independent Leasing Company
A financial organization that leases vehicles but is not affiliated with an automotive manufacturer or distributor. (See Captive Finance Company.)

Initiation Fee (See Acquisition Fee.)

Lessee
The person or company leasing the car from the dealership.

Lessor
The company that leases the vehicle to the consumer.

Manufacturer's Suggested Retail Price (MSRP)
Also known as "sticker price." MSRP is what the vehicle manufacturer determines is the value of the car at retail. In the majority of situations, the vehicle sells for less than the MSRP. However, it can sell for more than the MSRP if the vehicle is in particularly high demand.

Open-End Lease
A lease where the consumer is liable for a shortfall between the vehicle's projected value (at lease inception) and its actual value (at lease end). (See Closed-End Lease.)

Preparation Fee
A fee charged by the dealer or lessor to cover the incurred cost of readying the vehicle for pick up. Also known as "prep fee."

Rent Charge
A lease's equivalent to a regular auto loan's interest.

Residual Value
The estimated wholesale value of a leased vehicle at the end of the lease. It is used to determine your monthly payment.

Single-Payment Lease
A lease where all payments are made in a single lump sum, rather than on a monthly basis. Generally, the consumer pays less interest this way than with a conventional lease.

Total Contractual Obligation
The sum of your down payment, trade-in, all monthly payments and any other fees, exclusive of deposits, taxes, and registration expenses.

Trade-In Allowance
The value assigned to the vehicle you use as a trade.