The world of vehicle leasing can be overwhelming for some. There is a lot of money involved in maintaining an auto lease, and often it sounds like financial companies are speaking a different language. Below are some key terms you should be familiar with if you are considering an auto lease:

• Residual factor – A residual factor (or value) is the estimated price of the car after the lease period. It is an important factor to consider because the difference of the estimated selling price and the residual factor determines your monthly lease payment.

• Money factor – The money factor (also known as the lease factor) is basically the interest rate on your monthly lease payment. If you get into auto leasing, make sure the money factor is as low as possible, or else your monthly lease payment may be increased. In order to convert the money factor to an interest rate, simply multiply it by 2,400. This should give you an excellent idea of the rate that they are charging you.

• Acquisition fee – Also known as an assignment or administrative fee, the acquisition fee usually covers insurance costs and things such as credit report documents, the cost of entering data into accounting systems, and various other charges that accrue when taking care of the administrative details. Lessors with no acquisition fees usually charge higher monthly lease payments.

• Depreciation rates – The depreciation rate is the amount you pay during the lease term as your leased car depreciates. This is crucial in determining what kind of car you’d like to lease because a car that depreciates less over time will save you more money than a car that depreciates quickly.

• Equity – The equity of your leased vehicle is determined by the difference of the MSRP value (the original market value) of your car and your loan amount after everything is paid off. This is equal to the approximate market value of your car at the end of the lease period.

Before deciding if you are going to lease a car, make sure you check the Federal Reserve site’s glossary of auto leasing vocabulary to see exactly what the terms of a leasing agreement entail.