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Commercial Lending

The demands of your business require

Lease Term
Glossary

specialized knowledge and a unique

customer focus. Ford Credit commercial
financing products have been developed to
respond directly to your needs. Our specialized

Understanding the
leasing language.
Leasing doesnt have to be complicated.
In fact, for many businesses, leasing is an
easy choice to makeonce the basics are
properly understood. We developed this
pocket glossary to help minimize confusion

commercial products include Commercial

over many common leasing terms and

Retail Finance, Commercial Line of Credit,

phrases that can sometimes complicate the

CommerciaLease, Commercial Service Plus

decision-making process.

SM

and Commercial GAPCoverage. These

products, combined with our full-service

Keep this handy for your future reference

commercial sales organization and dealer

about our leasing terminology. You are

network, provide everything you needright

also invited to contact your nearest Ford

in your market area.

Dealer if you have any questions about

whether leasing should be a part of your

For additional information or a more

vehicle acquisition strategy.

d e t a il e d d e s c r ipti o n of a ny of o u r
commercial programs, visit our Web site at
w w w.for dcr edit .com /comlend
or contact your local Ford Dealer or the
Ford Credit Commercial Fleet Manager

www.fordcredit.com/comlend

who handles your territory.

Ford Credit programs herein were in effect
when this publication was approved for printing.
Ford Credit, whose policy is one of continuous
improvement, reserves the right to change
specifications, features and programs without
notice and without incurring obligation.

FC-18217-A 09/10
Previous editions may not be used.

General Leasing Terms*

Acquisition Cost
Capitalized cost, less customer
capitalized cost reduction.
Alternative Minimum Tax (AMT)
A separate tax calculation from standard
income tax calculations; taxpayer must pay
the higher of its regular tax or AMT liability.
Capitalized Cost
Total agreed value for the vehicle
and accessories.
Capitalized Cost Reduction
A payment made at lease inception that
reduces the capitalized cost and
operates similarly to a down payment
in a retail contract.
Charge-Back
A charge made to the lessee by the lessor
for any expense that is incurred by the
lessor that is in excess of that provided
for in the lease agreement; e.g., damage
in excess of normal wear and use,
unauthorized purchases, etc.
Excess Mileage Charge
A predetermined per-mile charge paid by
the lessee for the miles driven in excess of
the agreed upon annual mileage.
Fair Market Value
The value of a vehicle, at a point in
time, if the vehicle were to be sold in a
transaction determined at arms length,
between a willing buyer and a willing
seller, for equivalent property and under
similar terms and conditions.
Interim Rent
The portion of a lease payment owed from
the delivery date of the vehicle to the lease
commencement date (if different from the
delivery date).

Lease Classifications*
Lease
A contract where a vehicle owner (lessor)
conveys to another party (lessee) the right
to use a vehicle for a predetermined length
of time for a negotiated payment.
Lease Term
The length of time the lease is in effect.
Lessee
The company or individual to whom
specified vehicles have been leased
for use for a period of time in return for
periodic payments.
Lessor
The party leasing specified property
(vehicles) to another party in return for
receipt of a periodic payment.
Payment in Advance
A payment stream in which each lease
payment is due at the beginning of each
payment period during the lease.
Payment in Arrears
A payment stream in which each lease
payment is due at the end of each payment
period during the lease.
Payment Factor
A numeric factor used by the lessor
in determining the lessees lease
payment, usually a monthly percentage
of acquisition cost.
Payoff (Early Termination)
An amount payable by a lessee to a lessor
when the lessee ends the lease of a vehicle
prior to the scheduled end of the lease term.
Residual Value (Lease-End Value, LEV)
The predetermined, agreed upon value of
the vehicle at the end of the lease.

Capital Lease
From a financial reporting perspective, a
lease required to be shown as an asset and
a related obligation on the balance sheet of
the lessee. Criteria for capital lease detailed
in FASB 13.
Non-Tax Lease
From an IRS perspective, the lessor
does not qualify for the tax benefits of
ownership. The lessee makes payments
to the lessor and receives the same tax
benefits of ownership. This lease is in
effect a conditional sales contract. The
lessee is entitled to claim depreciation
and interest expense deductions in lieu
of claiming the lease payment as an
operating expense deduction. Capital
leases are non-tax leases.
Operating Lease
From a financial reporting perspective, a
lease with the characteristics of a rental
agreement and also meeting the criteria
established by FASB 13. Such a lease is
considered off-balance-sheet financing
for the lessee.
True Lease
(Tax Lease or Traditional Lease)
From an IRS perspective, the lessor
qualifies for the tax benefits of ownership.
The benefits of these tax savings are
passed on to the lessee through lower
lease payments. The lessee uses the
equipment in exchange for rental payments
and the lessee is allowed to claim the
entire amount of the lease rental as an
expense (a tax deduction).
*These classifications types and definitions are general
in nature. You should consult with your own tax
professional before making any decisions based on
these definitions on their potential tax consequences.
The descriptions given here may or may not apply to
your situation.

Common Lease Types*

Finance Lease
A lease accounted for as a capital lease and
the lessee is considered the legal and tax
owner of the equipment. The lessor takes
a security interest in the equipment.
Maintenance Lease
(Service Lease, Full-Service Lease)
A lease where the lessor assumes all or
certain maintenance costs as specified
in the contract. Could include limited
maintenance or guaranteed maintenance.
Net Lease
(Closed-End Lease, Flat-Rate Lease,
Guaranteed Lease, Walkaway Lease)
With this lease, the lessor assumes the
depreciation (residual) risk. The lessee pays
all maintenance and operating costs and is
responsible for excess mileage and excess
wear and use.
Retail Lease
(Consumer Lease, Individual Lease)
Normally a single-unit transaction written by
either a vehicle dealer or independent lessor,
typically on a net lease contract.
Terminal Rental Adjustment Clause
(TRAC) Lease (Open-End Lease)
A lease with a clause that provides for a last
payment adjustment to the lease obligation.
At lease-end, the lessor sells the vehicle,
and any gain over the depreciated book
value (assumed residual) is returned to the
lessee as a rent reduction. If the vehicle
is sold for less than the depreciated book
value, the lessee pays the difference
between the sale price and depreciated
book value.
Split TRAC
A modified TRAC lease where the lessor
assumes part of the estimated residual value
risk which may allow the lessee to classify the
transaction as an operating lease.