Sales/use taxes.

Sales/use taxes, which vary from state to state and often from county to county, are assessed on both leased and purchased vehicles. There are often differences in what amounts are taxed and when the taxes are assessed. In a lease, sales/use taxes may be assessed on (1) the base monthly payment; (2) any capitalized cost reduction; and (3) in a few states, the adjusted capitalized cost. In most states, the sales/use tax on the base monthly payment is paid monthly; in some states, however, the tax is due at lease inception. Sales/use taxes on the capitalized cost reduction and the adjusted capitalized cost are usually due at lease inception. If you exercise any purchase option, separate taxes may apply.

Security deposit.

An amount you may be required to pay, usually at the beginning of the lease, that may be used by the lessor or assignee in the event of default or at the end of the lease to offset any amounts you owe under the lease agreement. Any remaining amount may be refunded to you.

Security interest. If stated in your lease agreement, a lessor’s or assignee’s legal right to your property (such as stocks or bonds) that secures payment of your obligation under the lease agreement.

Segregated disclosures.

Disclosures required by the Federal Reserve Board’s Regulation M that must be grouped together and separated from other information in the lease documents. The first page of the model lease form shows the disclosures that must be segregated. See also Non-segregated disclosures.

Service contract (mechanical breakdown protection or extended warranty).

A contract that you may purchase to cover expenses such as the repair or replacement of vehicle components and that may pay for related services such as towing or replacement rental cars. In most cases, service contracts do not cover routine maintenance. Distinguish from Maintenance contract.

Single-payment lease. A lease that requires a single payment made in advance rather than periodic payments made over the term of the lease. This lump-sum payment should be less than the total amount you would pay were you to make periodic payments over the term of the lease.

Standards for wear and use. Statements in the lease agreement defining what the lessor or assignee means by normal wear and use and setting the requirements for the vehicle’s condition at the end of the lease. Standards may address such items as the minimum amount of tread on the tires at the end of the lease or the type of dents or scratches that are acceptable. These standards must be reasonable.

Sublease. Oral or written contractual transfer of your right to use the leased vehicle to another person. Such a transfer is usually prohibited without the lessor’s or assignee’s approval.

Subvention. A program or plan in which certain items are subsidized by the manufacturer, the finance company, the lessor, or the assignee.