Auto financing glossary
The terms that decide subprime car deals, defined in plain language. Most of these are words you will first hear at a dealership desk, in the middle of a transaction, with no one explaining them.
- Cap Cost Reduction — Cap cost reduction is cash, a trade-in, or an incentive that lowers a lease's capitalized cost. A $1,500 example shows the real payment math.
- Lease Buyout Price — The lease buyout price is what you owe to own the car at the scheduled end of the term: residual value plus a fee and tax, totaling $19,133 on one example.
- Money Factor — A lease's interest rate written as a decimal. Multiply by 2,400 for the APR: a 0.00275 money factor is about 6.6%. The rent charge formula behind it, worked.
- Payoff Quote — A payoff quote is what you owe to end a lease early: the lease-end buyout price plus remaining payments. Worked on a hypothetical $26,900 lease.
- Rent Charge — The rent charge is a lease's interest cost: (adjusted cap cost + residual value) x money factor. Computed here at $151.75 a month on $48,950.
- Residual Value — Residual value is a car's predicted worth at lease end, set at signing. On a hypothetical $28,000 lease, a 58% residual works out to $16,240.