Car lease glossary: terms from A to Z

Each definition here is short, and the links lead to the full explanation.

The car lease terms that set your payment

Five terms decide the payment. The depreciation charge is the capitalized cost minus the residual value, spread over the term; the rent charge is the capitalized cost plus the residual value, times the money factor; and California adds tax to each payment. The mileage allowance moves the residual, since more miles means a lower value at the end. See how car leasing works for the full walk-through.

A

Acquisition fee. The lender's fee for setting up the lease, paid at signing or added to the capitalized cost. Ask whether the amount on your quote is the lender's standard fee. See lease fees explained.

Add-on. A product or service the dealer, not the manufacturer, charges for, such as paint protection or nitrogen-filled tires. Nearly all are optional. See dealer add-ons and junk fees.

Adjusted capitalized cost. The gross capitalized cost minus any capitalized cost reductions. It's the balance the payment is figured from. See capitalized cost.

Agreed-upon value. The selling price of the car as written in the lease contract. California lease contracts list it first in the itemization of gross capitalized cost. See capitalized cost.

Amount due at signing. Everything you pay before you drive away: the first payment, any capitalized cost reduction, fees and taxes. It's also called the drive-off amount. See due at signing.

Auto broker. A business that arranges the purchase or lease of a car from a dealer on your behalf. California's DMV oversees auto brokers along with dealers. See what a car broker does.

B

Base monthly payment. The depreciation charge plus the rent charge, before tax. See how car leasing works.

Business lease. A lease signed by a business or used mainly for business. Its tax treatment differs from a personal lease, so ask your tax adviser. See leasing a car through your business.

Buy rate. The base money factor or interest rate a lender offers the dealer for your credit tier, before any dealer markup. See money factor.

Buyout. Buying the car you've been leasing, at the purchase option price at lease end or at the payoff amount before then. See buying out your lease.

C

Capitalized cost. The amount the lease finances: the car's agreed-upon value plus capitalized fees, add-ons and any old balance. The gross figure comes before reductions and the adjusted figure after. See capitalized cost.

Capitalized cost reduction. Cash, rebates or trade-in equity that lower the capitalized cost at signing. In California it's taxable when you pay it. See due at signing and zero down.

Captive lender. A finance company owned by a carmaker that finances and leases that brand's cars, such as Toyota Financial Services or Mercedes-Benz Financial Services. See how car leasing works.

CARS Act (California). SB 766, a California law operative October 1, 2026 that sets rules for dealer add-ons, written payment disclosures and a three-day right to cancel for many used cars. See dealer add-ons and the CARS Act.

Closed-end lease. A lease where, at the end, you can return the car and owe only the charges your contract lists, such as excess mileage, excess wear and a disposition fee, rather than any drop in market value. Consumer car leases are usually closed-end. See how car leasing works.

Co-signer. A second person who signs the lease and becomes responsible for the payments if you don't pay. See leasing with a co-signer.

Conquest offer. An incentive for shoppers who currently own or lease a competing brand. See loyalty and conquest offers.

Credit tier. The band a lender places you in based on your credit, which sets the money factor you qualify for. See leasing with bad credit.

D

Dealer addendum. A second sticker beside the window sticker that lists dealer-installed add-ons and any markup. In California, a supplemental price sticker must label any amount above MSRP and the listed items as added mark-up. See dealer add-ons.

Depreciation charge. The part of the payment that covers the car's expected loss in value: adjusted capitalized cost minus residual value, divided by the months in the term. See residual value.

Disposition fee. A fee some lessors charge when you return the car at lease end. It's often waived if you lease or buy another car through the same lender. See the disposition fee.

Document processing charge. The dealer's fee for preparing sales and lease paperwork, often called the doc fee. California caps it (Vehicle Code 4456.5) and forbids presenting it as a government fee. See lease fees explained.

E

Early termination. Ending a lease before its scheduled end. Every car lease must warn that this can cost a substantial amount, and the charge is usually higher the earlier you end it. See getting out of a car lease early.

Equity. The amount by which the car's market value exceeds your lease payoff. You may be able to capture it by buying the car, trading it in or, where the lessor allows, selling it. See lease equity.

Excess mileage charge. The per-mile charge for miles beyond your allowance, billed when you return the car. The rate is in your contract, and California taxes the charge. See over your lease miles.

Excess wear and use. Damage beyond normal wear, such as dents, torn upholstery or bald tires, charged at turn-in under the lessor's standards. See excess wear and tear.

Extension. Keeping the car past the scheduled end date, month to month or for a set period, where the lessor allows it. See extending your car lease.

F

Financing. Borrowing to buy the car. You own it, build equity as you pay and have no mileage limit or turn-in charges. See lease or buy.

G

GAP. Guaranteed asset protection: coverage for the difference between what your insurer pays and what you owe if the car is totaled or stolen. Many leases already include a gap waiver. See GAP and insurance on a car lease.

GAP liability notice. A notice California requires on the first page of any lease that leaves you responsible for the gap after a total loss. See how to tell if your lease has gap coverage.

Gross capitalized cost. The car's agreed-upon value plus everything else added to the lease balance, before any reductions. See capitalized cost.

I

Itemization of Gross Capitalized Cost. A boxed list California requires in every lease contract, showing the car's value, each insurance premium and service contract, any debt cancellation charge, any old balance and every other item in the capitalized cost. See how to read a lease quote.

L

Lease. A contract to use a car for a set number of months and miles in exchange for payments, after which you return it or buy it. See how car leasing works.

Lease end. The last months of a lease, when you choose whether to return the car, buy it, extend or replace it. See every lease-end option.

Lease transfer. Handing your lease to another person who takes over the payments, if the lessor allows it. See transferring a car lease.

Lessee. You, the person leasing the car.

Lessor. The company that owns the car and leases it to you, usually the brand's captive lender or a bank. California requires a leased car to be registered in the lessor's name, or jointly with you.

Loyalty offer. An incentive for people who already own or lease the same brand. See loyalty and conquest offers.

M

Market adjustment. An amount a dealer adds above MSRP, also called additional dealer markup. It isn't a product, and it's negotiable. See dealer add-ons and junk fees.

Mileage allowance. The miles you can drive without paying an excess mileage charge, stated per year and for the whole term. See choosing your lease mileage.

Money factor. The lease's finance rate, written as a small decimal. Multiply it by 2,400 for a rough interest-rate equivalent. See money factor.

MSRP. The manufacturer's suggested retail price, shown on the window sticker along with factory options and the destination charge. Residual values are usually figured as a percentage of it. See residual value.

Multiple security deposits. Extra refundable deposits some lenders accept at signing in exchange for a lower payment. See money factor.

N

Negative equity. Owing more on your current car than it's worth. Rolled into a new lease, it raises the capitalized cost, and a California lease contract must itemize it. See lease equity.

O

One-pay lease. A lease where you pay all the monthly payments upfront in a single sum at signing. See due at signing.

Open-end lease. A lease where your liability at the end depends on the difference between the residual value and what the car is actually worth or sells for. Ask before you sign whether a lease is open-end.

P

Payoff amount. The amount needed to close the lease before its scheduled end, as quoted by the lessor. It's the number that matters for a buyout, a trade-in or a sale. See third-party lease buyouts.

Pull-ahead. A brand program that lets you end a lease early, without some of the remaining payments, when you lease or buy a new car from the same brand. See lease-end options.

Purchase option price. The price at which you can buy the car at lease end, usually the residual value plus any purchase fee, stated in the contract. See buying out your lease.

R

Rebate. Manufacturer money applied to the deal, usually as a capitalized cost reduction. Some rebates require proof of eligibility, such as military service or recent graduation. See military and graduate programs.

Registration and title fees. DMV charges to title and register the car. They aren't negotiable, and California doesn't charge sales tax on them. See lease fees explained.

Regulation M. The federal rule under the Consumer Leasing Act that sets which disclosures a consumer lease must show, such as the amount due at signing, the payment calculation and the early termination warning. California requires those disclosures in every vehicle lease contract, whether or not the federal rule applies. See how to read a lease quote.

Rent charge. The finance charge in a lease. Each month it's the adjusted capitalized cost plus the residual value, times the money factor. See money factor.

Residual value. The lessor's estimate, set at signing, of the car's value at lease end. It drives the depreciation you pay and usually sets your buyout price. See residual value.