Leasing Jargon Buster
Leasing Jargon Buster: Your Guide to Car Leasing Term

Initial Rental/Advance Rental
An initial payment made at the beginning of a lease, typically calculated as a multiple of the monthly payment, aimed at reducing subsequent monthly costs.
Balloon Payment
An optional payment at the end of a finance agreement, such as a Personal Contract Purchase (PCP), which allows you to either purchase the car or return it.
Business Contract Hire (BCH)
A type of lease designed for businesses, allowing them to lease vehicles for business use, often with VAT benefits and potentially lower monthly payments.
BVRLA
The British Vehicle Rental and Leasing Association, which regulates leasing companies and sets standards for fair wear and tear.
VAT
‘Value added tax’ is currently at a rate of 20% and payable on top of all business lease prices. Lovely.
CO2 Emissions
The amount of carbon dioxide a vehicle emits, affecting company car tax and environmental impact assessments.
Consumer Credit Act (CCA)
Legislation that provides legal protection for consumers in credit agreements, ensuring transparency and fairness.
Contract Hire
A leasing arrangement where a vehicle is leased for a set period with fixed monthly payments, without the option to purchase the vehicle at the end.
Contract Purchase
Similar to contract hire but with an option to purchase the vehicle at the end of the term, usually involving a balloon payment.
Depreciation
The decrease in a vehicle's value over time, a key factor in calculating lease payments, as lessees pay for the car's depreciation during the lease term.
Excess Mileage Charge
Fees charged if you exceed the agreed-upon mileage limit in your lease contract, typically calculated on a per-mile basis.
Fair Wear and Tear
The acceptable level of wear on a leased vehicle as defined by guidelines, such as those from the BVRLA, to avoid additional charges at lease end.
Finance Lease
A type of lease where the lessee bears the risks and rewards of ownership, commonly used for business leasing.
Gross Capitalised Cost
The total cost of the vehicle including any additional fees and taxes that are rolled into the lease, used to calculate monthly payments.
GAP Insurance
Insurance that covers the difference between the vehicle's value and the remaining lease payments if the car is declared a total loss or stolen.
Hire Purchase (HP)
A finance arrangement where you make monthly payments and own the vehicle at the end of the agreement after all payments have been made.
Initial Payment
Also known as the initial rental, this non-refundable upfront payment reduces your monthly lease payments.
Inception Fees
Fees due at the start of a lease, which may include the initial payment, deposit, and any administrative fees.
Lease Inception
The start date of the lease agreement when you take delivery of the vehicle.
Lease Term
The duration of the lease agreement, typically ranging from 24 to 48 months.
Lessee
The individual or business that leases the vehicle.
Lessor
The leasing company or financial institution that owns the vehicle and provides it to the lessee under a lease agreement.
Mileage Allowance
The maximum number of miles you can drive annually without incurring excess mileage charges, specified in the lease contract.
Money Factor
A decimal number used to calculate the interest portion of your monthly lease payment, roughly equivalent to the interest rate.
Personal Contract Hire (PCH)
A type of lease agreement for personal use, similar to Business Contract Hire but designed for individuals.
Residual Value
The estimated value of the vehicle at the end of the lease term, which influences monthly lease payments.
Wear and Tear Guide
A guideline, often provided by the BVRLA, that outlines acceptable vehicle conditions and what constitutes excess wear and tear at the end of a lease.
Funder
This is the lease company who own the car and your lease agreement is with.
Payment profile
A payment profile is used to calculate the deposit and lease term, for example, a common profile is 3+35. This tells us it is 36 months long with an initial rental of the equivalent of 3 months.
Lead time
This is the time it’ll take for the car to arrive at the dealership. ‘The lead time is 12 weeks’ for example.
MPG
‘Miles per gallon’ – how many miles the car should travel per gallon of fuel.
Road fund licence
This is another name for road tax!
BHP/PS
‘Break Horsepower’ or ‘Pferdestrke’ (which means ‘horse strength’ to you and me) is a measure of power available at the shaft of an engine.
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