Car Leasing Jargon Buster

Leasing a car is probably one of the most stress-free ways to get behind the wheel of your ideal brand-new vehicle. However, there’s a lot of jargon you’ll come across while going through the process, which can be a pain to sift through.

Fear not. We’ve put together a list of all the acronyms and phrases you’ll need to help you lease with confidence.

Admin fee

An admin fee is what some providers will charge upfront in order to process a lease deal. It can apply to both personal and business agreements and you may find that it’s called a ‘processing fee’.

The cost of this additional charge can be from £100-£300 depending on the company who is leasing you your car.

You may find that there are vehicles advertised with no admin fees. However, the chances are that the monthly rental fee will be higher to cover the cost.

Business Contract Hire (BCH)

business fleet

A Business Contract Hire deal (otherwise known as BCH), is a form of leasing which is like a personal agreement, but the car is predominantly for business use.

In order to be eligible for a BCH deal, you must:

  • Prove to the leasing company that you are a sole trader, partnership limited company or LLP (Limited Liability Partnership).
  • Providing up to three months’ worth of business bank statements and/or audited accounts.

A BCH deal will most likely always have cheaper monthly payments compared to its alternate option, Personal Contract Hire (PCH). This is because the latter is displayed with the VAT included, which isn’t the case for business.

If you’re part of a business, partnership or limited company that’s VAT registered, you can claim back 50% of tax on the monthly payments. This rises to 100% for any maintenance packages that may be included on the deal.

BVRLA

The British Vehicle Rental and Leasing Association (BVRLA) is a trade body for companies involved in leasing and rental of vehicles. They’re responsible for licencing providers and reassuring customers that they adhere to specific guidelines set out for a car’s condition.

As well as regulating companies involved in contract hire and leasing, the BVRLA created the ‘Fair Wear and Tear’ guide – a standard which informs you and a provider of a lease car what is an acceptable condition for the vehicle when it comes to collection.

Providers use this guide when inspecting their vehicles at the end of each agreement and will give you a copy of it before you get behind the wheel.

Depreciation

depreciation

Every car begins to lose its market value the minute it is driven. This is what’s known as depreciation. It varies depending on each vehicle’s age, condition, model, mileage and popularity.

Depreciation is something which should only concern you if you own a car and need to sell it, or if you’re considering paying the final ‘balloon payment’ to take ownership of a vehicle you’ve financed on a Personal Contract Purchase (PCP) deal. In this instance, the future value of a car will impact how much money you get from a private buyer or dealership when selling. Or it will decide what difference you need to pay from a vehicle’s retail value and worth at the end of your PCP deal.

Because leasing doesn’t involve owning the vehicle, depreciation is not a cost you need to factor into any deal. Instead, the monthly rentals will cover this over the course of your contract.

Excess mileage

This refers to the annual mileage cap which is placed on every lease deal. If you exceed the mileage cap specified, then the leasing company will charge you at a rate-per-mile.

Rates will be slightly different depending on the provider you choose, but the exact amount will be specified in your contract. Typically, you can expect the charge to be from 5p to 30p, though sometimes this can be more.

To avoid excess mileage charges, it’s important that you be honest when declaring how many miles you’ll do when configuring your new car.

Top tip: calculate your miles quickly for the year with this simple formula:

(weekly miles + average weekend miles) x 52

On average, most deals allow you to choose from 8,000-30,000 miles per year, though there are high mileage offers tailored to those who need to travel by car a lot.

Fair Wear and Tear

When you lease a car, it won’t have to be in showroom condition when it’s collected. However, the finance provider which is the registered owner and keeper of the vehicle will expect no major damage or faults when it comes to handing the keys back.

You’ll most likely be given the BVRLA’s official ‘Fair Wear and Tear’ guide which highlights specific damage which goes beyond general use. Be sure to check this guide against your new motor to avoid incurring extra charges.

For our top tips on preparing your car for collection, see our complete guide to returning a leased car.

Initial payment or initial rental

An initial payment is a non-refundable fee paid at the start of every lease deal. The amount you pay will work against the monthly rental price for the vehicle, so the higher you pay upfront, the lower your monthly rentals will be.

Most providers and leasing companies will give you a flexible option for the initial payment, which will be worked out as a multiple of the monthly cost. Options tend to include one, three, six or nine months.

You may see leasing deals advertised using a sum, such as ‘6+18’. This is known as a payment profile and summarises the initial payment and remaining rental charges. The first number is the amount in months you pay initially, in this case six months. The second figure tells you that there’s 18 monthly payments outstanding that will be charged by the finance company.

Lead time

car factory lead times

Lead time refers to the period between configuring your brand-new car and the car being shipped to the dealership.

This is a long process (from two weeks to six months) if you have chosen a factory order because the car would need to be built to your exact specification and shipped to the dealership.

While most deals for a lease car will be for vehicles that are in stock, there may be times where a provider will be at the mercy of the manufacturer, especially if you want a certain colour, gearbox or engine for your new car.

MPG

mpg gauge

Miles per gallon (MPG) is a measurement of how fuel-efficient a car is – calculating the distance a car can travel on a gallon of fuel.

When deciding on a new car, looking for models with good fuel economy will mean that you save on running costs. On top of this, your insurance policy for your new car is likely to be cheaper if it burns through less petrol or diesel.

Some manufacturers are renowned for engineering vehicles with efficient engines and hybrid/electric technologies, such as Nissan and Skoda.

Personal Contract Hire (PCH)

Personal Contract Hire is another word for leasing. It gives you access to a brand-new car for fixed monthly payments.

You can choose to have the car from 2-4 years, though shorter and longer terms are available, if you should need greater flexibility. Alongside choosing how long you want the car for, you will decide what yearly mileage you will drive and how much you want to pay upfront.

Because PCH is a credit agreement, approval for any deal will be subject to a credit check from the finance provider funding the vehicle.

All contracts with the finance provider will be in your name as the lessee, whereas with a business agreement the it will be the director of the company you’re working for.

Everything you need to know about personal car leasing can be found in our other handy guide here.

Provider

A provider is a ‘middle-man’ between a leasing company, customer and manufacturer.

As well as working hard to get you the best price possible on your new car, they offer handy advisory and support services for new and returning customers.

If you decide to lease a car, you can choose between approaching a provider directly, or using a leasing comparison website. The latter option is most convenient as you will be shown the best deal from a selection of providers, all in one place.

Alternatively, speaking directly to a provider could mean you get access to deals that are exclusively theirs. This is worthwhile if you have a specific manufacturer or model in mind for your new car, as some providers will have better access to manufacturers than the competition.

Still unsure? You can find out all about our panel of the UK’s top lease providers here.

Residual value

Like depreciation, residual value refers to the calculated worth of your car at the end of your lease deal. Essentially, this determines the cost of your fixed monthly payments over the course of your contract.

Your lease deal is paying for the depreciation of your chosen vehicle over the period of the lease agreement.

A provider will use various factors to decide on a car’s residual value, including annual mileage, the length of your contract and the depreciation of the vehicle.

Want to keep your lease payments down? Look for manufacturers and models that hold their value well, such as Audi and Mini, which are currently the best in the UK for holding their original worth.

Road fund licence

Another phrase used to refer to road tax.

Road tax is often included within the cost of your deal, though it’s worth checking with your provider whether this is for the entirety of your term. Some may specify that it is only included for the first year.

VAT

Value-Added Tax (VAT) is included within your monthly payments at a rate of 20%. You won’t have to worry about this tax on a BCH deal, unless the vehicle is used for private journeys. In this case, these miles will need to be recorded so that the leasing company can provide an invoice for the tax on them.

Now that you’ve conquered leasing jargon, why not begin your search for a brand-new car? Compare prices now on our lease deals for great offers on the latest models.

If you’re still scratching your head and need more information, check out our other guides to leasing.

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