Honda Financial Services Glossary of Finance Terms

Note: The following finance terms and their definitions only apply to financing in the United States, and may not be applicable elsewhere.

APR
The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate.

Business Day
For financial transactions, business days are specified by the U.S. Federal Reserve. For a complete listing, please visit the Federal Reserve website.

Capitalized Cost Reduction
An initial cash payment on a lease of up to 20%, similar to a down payment. The more you pay at the start of the lease, the lower the monthly payments. This could be in the form of cash, or the value of a trade, or a combination of the two.

Down payment
An initial payment when purchasing a vehicle. This payment is negotiable with your dealer.

Depreciation
This is the decline in value of a vehicle over the term of a financing contract or lease.

Early termination penalties
Most leases allow customers to return the vehicle before the end of the lease term. Often, there are additional fees charged to the customer if this option is exercised. You should be fully aware of what will be required should you decide to end your lease prematurely. With a lease from Honda Financial Services, there are no hidden early termination penalties. Make sure to check your lease agreement thoroughly.

Equity
The value of your vehicle, minus the total amount owed on it.

Gap assurance (Total Loss Protection)
Although you may intend to keep a vehicle for the full term of a lease, an accident or theft could cause early termination. Most auto insurance policies pay the average market value of the car, which may be considerably less than the remaining lease obligation. Leases from Honda Financial Services include "gap" protection to cover this difference in the event of such a loss. This is a very desirable feature to look for in your lease. If you are purchasing a vehicle outside New York, you may be able to purchase gap assurance coverage from your dealer.

Note: A retail installment contract from Honda Financial Services includes gap assurance only if the vehicle is purchased in the state of New York.

Purchase price
The selling price of the vehicle plus any additional charges such as taxes, acquisition fees, official fees and other charges.

Residual value
The projected value of a vehicle at the end of a lease. This number is not negotiable. This value will vary according to the lease terms, mileage allowance and the vehicle's make and model. Vehicles that tend to have a high resale value will also have higher residual values, which typically lead to lower lease payments.

Term
The duration of a lease or financing contract, usually expressed in months (e.g., 36 months).