We know our business. We’d like to meet yours. 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 doesn’t have to be complicated. In fact, for many businesses, leasing is an easy choice to make…once 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 need—right 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 arm’s 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 lessee’s 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.
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