Lease buyout glossary
Lease paperwork is full of terms that sound alike but mean very different things. This glossary defines the words you will meet in a buyout in plain language, so the fine print stops being intimidating.
How to use this glossary
A lease buyout has its own vocabulary, and a single misread term — residual versus payoff, equity versus fee — can lead to a wrong decision. Learn the words and the process gets much simpler.
These definitions are general and meant to orient you. Your own lease agreement is always the authority for your specific terms and figures. Use this page to understand what a term means, then check your contract or ask your leasing company for the exact number. For the full walkthrough of the buyout itself, pair this with our lease buyout financing guide.
Core value and price terms
- Residual value — the leasing company’s estimate, set at signing, of the car’s worth at lease end. It becomes your buyout price at the end of the term.
- Payoff / buyout amount — what you actually owe to purchase the car today. At lease end it usually equals the residual; earlier it can include more.
- Market value — what your specific car would sell for now in the used market, independent of the contract.
- Lease equity — the gap between market value and payoff. Positive when the car is worth more than the payoff, negative when it is worth less.
- MSRP — the manufacturer’s suggested retail price, often the basis for the residual percentage.
The relationship between the residual, the payoff, and the market value is the heart of every buyout decision — see residual value explained for the deeper mechanics.
Fees and contract terms
- Purchase option — your contractual right to buy the car at the agreed price.
- Purchase-option fee — a set charge some leases add when you exercise the purchase option.
- Disposition fee — a charge that can apply when you return the car; buying out generally avoids it.
- Excess-wear charge — a bill for damage beyond normal use, assessed at return, not at buyout.
- Over-mileage penalty — a per-mile charge for miles above your contract limit, applied at return.
- Early-termination charge — costs that can apply if you end or buy out the lease before the term ends.
Financing terms
- Money factor — the lease’s equivalent of an interest rate; it affected your lease payment, not your buyout loan.
- Loan rate — the rate a lender charges on the buyout loan, set through underwriting.
- Loan term — the number of months over which you repay the buyout loan.
- Lienholder — the party with a legal claim on the car until the loan is paid; it changes when you buy out and finance.
- Stipulation — a condition or document a lender requires before final approval.
- GAP coverage — optional protection covering the gap between what you owe and the car’s value if it is totaled.
New to all of this? If several of these terms are unfamiliar, start with our first-time buyout guide, which puts them in the order you will encounter them.
Frequently asked questions
What is the difference between residual value and payoff?
Residual value is the price to buy the car set in your lease at signing. Payoff (or buyout amount) is what you actually owe to purchase the car right now — at lease end it usually equals the residual, but earlier in the term it can include remaining payments and charges. Your official payoff quote is the number that matters.
What does “lease equity” mean?
Lease equity is the gap when your car’s market value is higher than your buyout price. If the car is worth more than the payoff, you have positive equity, which you can capture by buying out. If it is worth less, you have negative equity.
What is a disposition fee?
A disposition fee is a charge some leases apply when you return the car at lease end, meant to cover the leasing company’s cost of preparing and reselling it. Buying out the car generally avoids it, because the fee applies to returns.
What is a purchase option or purchase-option fee?
The purchase option is your contractual right to buy the car; the purchase-option fee is a set charge some leases add when you exercise that right. Check your contract to see whether yours includes one.
What does “money factor” have to do with a buyout?
The money factor is the lease’s version of an interest rate and affected your monthly lease payment, not your buyout. When you finance a buyout, a separate loan rate from your lender applies instead. The two are different things.
Where can I confirm the exact meaning for my contract?
Definitions here are general. Your own lease agreement is the authority for your specific terms, and your leasing company and state motor vehicle agency can confirm fees and processes. Always check your paperwork for the precise figures.
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