Acquisition fee(bank fee, administration fee)
An upfront fee charged by the leasing company to initiate a lease. Typically $395–$995 depending on the bank and brand. Usually rolled into the gross capitalized cost or paid in cash at signing.
Auto Finance Glossary
Updated
Plain-English definitions for the auto finance, lease, and tax terms you'll see on dealer paperwork, loan documents, and lease ads. Each term links to the calculator that uses it.
Auto finance terms are mostly about three things: what you're financing (cap cost, principal, MSRP), how the financing is priced (APR, money factor, term), and the side costs that vary by state (sales tax, registration, ad valorem). This glossary defines each in one or two sentences with links to the calculator that uses it.
A
Ad valorem tax(personal property tax on vehicles)
An annual property tax assessed on the depreciated value of a vehicle, charged by some states (Alabama, Mississippi, Virginia) and many counties (Kentucky, Kansas, North Carolina). Rates and bases vary widely.
Adjusted capitalized cost(adjusted cap cost)
The amount the lease actually finances after subtracting cap cost reductions (cash down, trade-in equity, rebates, dealer contributions) from the gross capitalized cost. It is the base from which depreciation and finance charges are computed.
Amortization
The schedule of how each loan payment is split between interest (on the remaining balance) and principal (which reduces the balance). Early payments are interest-heavy; later payments shift toward principal.
Annual percentage rate(APR)
The yearly cost of borrowing expressed as a percentage, including interest plus most fees. Higher APR means higher total interest paid over the loan term. APR is the standard comparison rate for auto loans.
C
Cap cost reduction(CCR, lease down payment)
Cash, trade-in equity, rebates, or other credits applied at lease signing that lower the adjusted capitalized cost. The lease equivalent of a down payment — but if the vehicle is totaled or stolen early, this money is usually lost.
Capitalized cost (gross)(gross cap cost)
The total amount being financed by the lease before any reductions — selling price plus acquisition fee, dealer fees, registration, and any amounts rolled in. Reductions (cash down, trade equity, rebates) are subtracted to reach the adjusted capitalized cost.
Closed-end lease(walk-away lease)
The standard consumer lease: at lease end you return the vehicle and walk away, owing only excess mileage and excess wear charges plus the disposition fee. You are not responsible for any gap between the residual value and the vehicle's actual market value.
Co-signer
A second person who shares full legal responsibility for repaying a loan. Lenders may require a co-signer when the primary borrower's credit is insufficient. Missed payments hurt both credit profiles equally.
D
Depreciation
The decline in a vehicle's value over time. For most new vehicles, depreciation is the single largest cost of ownership over a 5-year horizon — often more than financing. Steep in the first 1–3 years, then flattens.
Depreciation charge (lease)
The portion of the monthly lease payment that pays down the difference between the adjusted capitalized cost and the residual value. Calculated as (adjusted cap cost − residual) ÷ lease term.
Destination charge(freight fee, destination fee)
A manufacturer-set fee to deliver the vehicle from the factory to the dealer. Set by the manufacturer (not negotiable), typically $1,000–$2,000, and disclosed on the Monroney sticker.
Disposition fee(lease end fee)
A flat fee charged by the leasing company when you return the vehicle at lease end without buying it. Typically $350–$500. Often waived if you lease another vehicle from the same brand.
Documentation fee(doc fee)
A dealer-specific fee for preparing paperwork. Some states cap it (California: $85; New York: $75; many states have no cap). Varies from $75 to $700+ depending on dealer and state.
Down payment
Cash paid upfront when buying a vehicle, reducing the amount financed. A larger down payment lowers the monthly payment and total interest paid. 10–20% of the vehicle price is a common rule of thumb for buying.
Due at signing(inception fees)
The total cash required at the start of a lease — typically cap cost reduction plus first month's payment plus acquisition fee plus security deposit (if any). The number in dealer ad disclosures.
E
Equity (vehicle)
The dollar amount your vehicle is worth above what you still owe on the loan. Positive equity means selling or trading would yield cash; negative equity means you owe more than the car is worth (also called "underwater").
Excess mileage charge
A per-mile fee for miles driven over the lease's annual mileage allowance, assessed at lease end. Typically $0.15–$0.30 per mile. A 5,000-mile overage at $0.25 = $1,250.
Excise tax
A state-imposed tax on vehicle purchase or use, charged in place of (or in addition to) sales tax in some states (Maine, Massachusetts, Oklahoma, South Carolina IMF). Computation varies by state.
F
Finance charge (lease)(rent charge)
The portion of the monthly lease payment that compensates the leasing company for financing. Calculated as (adjusted cap cost + residual) × money factor. The lease analog of interest.
G
GAP insurance(Guaranteed Asset Protection)
Coverage that pays the difference between the insurance payout (actual cash value) and the remaining loan or lease balance if the vehicle is totaled or stolen. Typically $300–$700 from dealers; often cheaper from your own auto insurer.
H
Highway Use Tax(HUT)
North Carolina's 3% tax on vehicle titling, charged in lieu of standard sales tax. Paid once at titling rather than at each registration renewal.
I
Infrastructure Maintenance Fee(IMF)
South Carolina's 5% fee on vehicle purchase, capped at $500, charged in lieu of sales tax at titling. Funds state infrastructure rather than going into general revenue.
L
Lessee
The party leasing the vehicle — usually the driver. The lessee has the right to use the vehicle for the lease term in exchange for the monthly payments.
Lessor
The leasing company that owns the vehicle during the lease (often the manufacturer's captive finance arm — BMW Financial Services, Toyota Financial Services, etc.). The lessor holds title until the lease ends or the purchase option is exercised.
Loan-to-value ratio(LTV)
Loan balance divided by the vehicle's value, expressed as a percentage. Under 80% is generally lower-risk for the lender; above 100% means you owe more than the vehicle is worth (underwater).
M
Manufacturer rebate(incentive, factory rebate)
A cash discount funded by the manufacturer, applied at the time of purchase or lease. May reduce the financed amount or be paid to the buyer. Often used to move slow inventory or hit quarterly sales targets.
Manufacturer's Suggested Retail Price(MSRP, sticker price)
The price the manufacturer suggests for the vehicle including options and destination charge. Posted on the Monroney sticker. Negotiable in practice for most vehicles, fixed for some in-demand models.
Money factor(MF, lease factor)
The lease equivalent of an interest rate, expressed as a small decimal (e.g. 0.00180). Multiply by 2400 for the approximate equivalent APR. Dealer ads almost never disclose it directly, but you can back-solve it from the other numbers they do show.
N
Negative equity(upside down, underwater)
When you owe more on a vehicle loan than the vehicle is worth. Common with long loan terms (72-84 months), small or no down payment, and luxury vehicles that depreciate fast. Rolling negative equity into a new loan worsens the LTV on the next vehicle.
O
Out-the-door price(OTD price)
The total amount you pay to drive the vehicle home — vehicle price plus sales tax, documentation fee, title fee, registration fee, and any dealer or other fees, minus any rebates or trade-in credit. The number worth comparing across dealers.
P
Payoff amount
The total cash needed today to pay off a loan in full — usually the current balance plus per-diem interest from the last payment date and any prepayment fees. Always confirm the exact payoff with the lender (good for 10–30 days).
Per-diem interest
Daily interest accrued on a loan, calculated as the current balance times the daily interest rate (APR ÷ 365). Why a payoff quoted on day 1 of the month differs from one quoted on day 30.
Principal
The portion of a loan payment that reduces the balance (as opposed to interest, which compensates the lender). Sum of all principal payments equals the original financed amount.
Purchase option price(lease-end purchase option)
The predetermined price at which the lessee can buy the vehicle at lease end — equal to the residual value (sometimes plus a small purchase option fee). Stated in the lease contract.
R
Refinance (auto)
Replacing an existing auto loan with a new one — typically at a lower APR or different term. Most useful when your credit has improved since the original loan, rates have dropped, or you need to restructure the payment.
Registration fee
Annual or biennial fee paid to a state DMV / Secretary of State to register the vehicle. Structure varies by state: flat (Pennsylvania, Illinois), weight-based (Florida, New York), value-based (California VLF, Arizona VLT), or age-based (Alaska, Montana).
Residual value(residual, RV)
The leasing company's projected value of the vehicle at lease end, expressed as a percentage of MSRP or a dollar amount. Higher residuals lower the depreciation charge and the monthly payment. Set by the leasing company, often using ALG / J.D. Power residual guides.
S
Sales tax
State (and often county/city) tax on vehicle purchase. Rate, basis, and lease treatment vary by state — most states allow a trade-in tax credit; some (California, Hawaii, Maryland) tax the full price; five states have no statewide sales tax.
Security deposit (lease)
A refundable deposit some leasing companies require at signing, usually equal to one rounded monthly payment. Returned at lease end minus any excess wear and tear or excess mileage charges. Increasingly rare in modern leases.
Subvented lease(captive lease subsidy)
A lease offer where the manufacturer subsidizes the money factor, the residual value, or both to lower the monthly payment. Common during inventory pushes and end-of-model-year promotions. Spotting one: the money factor is well below the credit-tier benchmark, or the residual is well above the ALG guide.
T
Term(loan term, lease term)
The number of months over which payments are made. Typical auto loans: 36, 48, 60, 72, or 84 months. Typical leases: 24, 27, 36, 39, or 48 months.
Title Ad Valorem Tax(TAVT)
Georgia's one-time titling tax (7.0% of fair market value as of 2026) charged at first titling. Replaces both standard sales tax and the annual ad valorem tax for vehicles purchased on or after March 1, 2013.
Title fee
A flat state fee charged when title to the vehicle is issued or transferred. Typically $15–$100 depending on the state.
Trade-in equity
The amount your trade-in is worth above what you still owe on it. Positive equity is applied as cash toward the next vehicle (and may receive a sales-tax credit in most states); negative equity gets rolled into the new loan.
V
Vehicle License Fee(VLF)
California's annual registration component charged as a percentage of the vehicle's depreciated value. The dominant cost of California vehicle registration; tax-deductible federally.
Vehicle License Tax(VLT)
Arizona's annual registration component, calculated as a percentage of the vehicle's assessed value. The assessed value depreciates each renewal year, so the VLT amount decreases as the vehicle ages.
See also
For longer-form explanations and worked examples, browse the auto finance guides. To put any of these terms into a calculator, start from the homepage calculator list.