Glossary of Terms

Acquisition Fee – The lessor fee, which is charged to the lessee and is typically included in the gross capitalized cost. This is commonly referred to as the “bank” fee.

Additional Insured – This is a designation on the insurance policy. The Credit Union must be named as additional insured in order to receive notification when changes to the policy are made.

Adjusted Capitalized Cost – The amount financed.

Agreed Upon Value (Cash Value) – Base cost of the vehicle prior to adding other items to be financed. ( fees, luxury tax, warranty, credit life and disability, and negative trade equity.)

Base Monthly Payment – This is comprised of the monthly lease charge and the monthly principal reduction (it’s like principal and interest).

Capitalized (Cap) Cost – This is the total price of the vehicle—in effect, its purchase price. In theory, the cap cost should equal the amount you would pay if you were purchasing the vehicle. The capitalized cost is the price the dealer actually receives for the vehicle.

Capitalized (Cap) Cost Reduction – This is leasing terminology for a cash down payment, money you pay up front that is applied to the final purchase price. A large cap cost reduction will reduce the monthly payments.

Closed and Open End Leases – Most leases offered today are closed-end leases, meaning that the residual value is fixed and stated in the lease contract (the stated residual value). The lessee’s financial obligations are unaffected by what the vehicle is actually worth when the lease ends. In other words, the lessee assumes no risk for the depreciation of the vehicle. With an open-end lease, there is a residual value set at the beginning of the lease. However, if the car is worth less than the residual value at the lease’s end, the lessee must pay the difference. In other words, the lessee assumes the risk for depreciation below the residual value with an open-end lease.

Collision Deductible – This is the deductible the lessee will have to pay in the event of a collision loss.

Comprehensive Deductible – This is the deductible the lessee will have to pay in the event of a loss other than a collision.

Contingent Liability/Contingent Physical Damage – This is a policy in which the credit union is listed through AFG Canada that will pay losses that are in excess of the lessee’s primary insurance coverage.

Covered Loss – A residual value loss covered by insurance.

Dealer Participation – Dealer participation is the amount over the buy rate that the lender allows the dealer to mark-up the rate. Dealer participation can also be defined as a rate commission. Examples of a rate commission could be 1% or 2% of the rate increased from Credit Union to lease contract.

Depreciation – The amount by which property loses its value. In automobile leasing, depreciation is the difference between the new car cost and the value of the car at the end of the lease.

Disposition Fee – This is a fee paid at the end of the lease, to the lessor, that covers the lessor’s cost of getting the vehicle ready for sale.

Down Payment – See capitalized cost reduction.

GAP Insurance – Guaranteed Automobile Payoff. In the event of a total loss, GAP can pay the difference between the lessee’s insurance fairmarket- value settlement and actual payoff.

Hard Adds – Dealer installed equipment that adds value to the vehicle and also increases the MSRP. Equipment such as a bed liner and alloy wheels are “hard adds”. This equipment is added to the MSRP prior to calculating the residual value.

Insurance Verification Form (IVF) – Document used during the pre- funding lease audit. The IVF is filled out at the dealership and signed by the individual who verifies lessee insurance. It is included in the scanned lease package sent to the AFG Canada.

Lease Term – The duration of the lease.

Lease Audit Worksheet – Used by credit union processor to audit the lease prior to funding.

Lessee – An individual who is leasing a vehicle. The lessee leases the vehicle from the lessor, and the loan amount is financed through the lender, or lien holder.

Lessor – The registered owner of the vehicle.

Lien holder – The lender who finances the loan.

Loss Payee – This is a designation on the insurance policy. The credit union may be named as loss payee in order to receive funds in the event of a loss.

Kilometers at Inception Adjustment – Information generated from the AFG Canada Residual Website that expresses a kilometer adjustment to the residual value of the used vehicle.

Kilometer Allowance – Lease agreements usually establish the average kilometers per year that the car may be driven during the lease. This is often between 18,000 and 24,000 kilometers. The lease contract also establishes the amount required for every kilometer driven over the allowance. The standard kilometer fee is usually 15 cents per kilometer.

Kilometers: Excess Adjustment – Adjustment is calculated at AFG Canada’s Residual Website and expresses a kilometer adjustment on a used vehicle lease if the lessee purchases “excess” kilometers at lease inception.

Maximum Advance, New Vehicles – Maximum Advance % of MSRP.

Maximum Advance, Used Vehicles – The maximum amount that can be funded equals Maximum Advance % x AFG Canada Retail

Money Factor – The most common way to express the base interest rate of a lease is as a money factor. Multiply a money factor by 24 (or 2400, depending on how the money factor is expressed), and the result will be approximately equivalent to the base interest rate. A dealer’s sales staff knows the money factor of most leases. The money factor is the cost of money, just like an interest rate. However, money factors are used almost exclusively in leases.

MSRP – Manufacturer Suggested Retail Price.

Odometer, Delivery and Acceptance Form (ODA) – Accompanies and amends the lease agreement to qualify the lease as “used.” Both the lessee and the dealer must sign this form in order for it to be accepted by the residual and GAP guarantor. The UVL processor at the credit union uses this form to validate the lease in Seamless.

Options – Equipment that may or may not exist on a used vehicle. These are listed on the ODA and noted at AFG Canada’s Residual Website.

Property Damage Coverage – Insurance that covers the lessee in the event of loss or damage to the property other than the vehicle.

Public Liability Coverage – Insurance that covers the lessee in the event of a loss where an injury takes place.

Purchase Option – Most closed-end leases grant the lessee an option to purchase the vehicle at the end of the lease. The end-of-lease purchase price is often referred to as the residual value.

Residual Value – The estimated future value of a vehicle. The residual is set by the lessor company, who also guarantees the residual value.

Residual Value Insurance (RVI) – Insurance that guarantees the contract residual on a leased vehicle which goes full term.

Residual Shortfund – Amount shortfunded to the dealer by the credit union at the time a lease is funded. This dollar amount is a result of a residual value that is too high. The amount shortfunded is nonrefundable to the dealer and is placed in a trust deposit account.

Soft Adds – Additional costs that do not increase the MSRP of the vehicle. Mechanical breakdown insurance is an example of a soft add.

Subvented (Subsidized) Lease – A subvented lease is a special lease offered by manufacturers with special incentives to make it more attractive. These special incentives often take the form of a lower base interest rate, higher residual values, and manufacturer discounts. In many cases, a subvented lease will have a lower net interest rate than other leases. Subvented leases are usually available for a limited time and the terms are not negotiable.

Uncovered Loss – Residual value loss not covered by insurance.

Wear and Tear – It’s the lessee’s responsibility to keep the car in good condition. If the lessee returns the car with a dented fender, bald tires, or a ruined engine because of lack of routine maintenance, they’ll be charged for the repairs. Normal wear and tear is allowed. Some lease agreements include a wear and tear waiver, which allows a portion of the wear and tear charges to be waived.

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Richmond, BC V7C 5E1

Toll-free Number:
888-486-1278

Email:
info@afgcanada.ca