Leasing Terms Explained - Part 3
Final Purchase Price
This price is equivalent to the amount you would pay for the vehicle if you were
buying or financing rather than leasing. The final purchase price does not
include any 'down' payment by the lessee.
Gap Insurance
Gap insurance covers you against additional losses not covered by your auto
insurance in the case of an accident in which the vehicle is totaled. Most auto
insurance will cover the actual cash value of the car at the time of its loss.
Gap insurance covers the difference (gap) between the actual cash value of the
vehicle and what is owed on the lease contract, including early termination
fees. Gap insurance is most important in the early years of a lease when the
difference between the value of the car and what is owed are greatest. Some
manufacturers now include Gap insurance in their leases.
Lease Term
This is the duration of the lease. 24 and 36 month leases are the most common
but you can lease a car for 12, 48, or even 60 months if you choose. Remember
that your monthly payment will change depending on the length of the lease.
Lessee
The individual or party signing the lease contract and taking responsibility for
the vehicle and lease payments.
Lessor
The individual, dealer, business, manufacturer, or financial institution that
owns the vehicle.
Independent Lessor
Independent Lessors are usually individual businesses that can provide for the
lease of virtually any make or model of vehicle. Independent lessors, like
dealers, can write custom leases including those with different conditions and
special mileage considerations.
MSRP
Manufacturer suggested retail price.
Manufacturer Discounts
In some leases, particularly subvented leases, the manufacturer reduces the MSRP
which lowers the purchase price of the vehicle, which the lease is based on.
This is a form of capitalized cost reduction.
Mileage Allowance
Lease agreements usually establish the average miles per year that the car may
be driven during the lease. This is often between 12,000 and 15,000 miles. The
lease contract also establishes the amount you'll have to pay for every mile
driven over the allowance. This mileage fee is usually 15 cents per mile.
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Part 2
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