Want to get to grips with vehicle leasing? Here’s a helpful glossary.

3+23 or 3+35

‘3’ determines the value made on inception of the lease (initial rental) expresses as 3 x the monthly payment. ‘23’ or ‘35’ determines how many monthly rentals remain payable thereafter.

Balloon payment

A final payment of a finance agreement – this is set at the start of the contract. Only applicable on some types of finance agreements.

Breakdown recovery

A mobile repair and recovery service for instances when a vehicle will not start or has broken down.

Cherished plates

A personalised number plate.

CO2

Abbreviation of Carbon Dioxide. The amount a vehicle emits in g/km is used to calculate company car tax and road fund licence.

Firm Reference Number (FRN)

To comply with the law, finance businesses must have a credit licence to carry out certain activities in the field of credit and hiring.

Contract Hire

A finance agreement where the customer pays for the use of a vehicle and simply hands it back at the end of the lease

Contract Purchase

A finance agreement where the customer pays for the use of a vehicle and has the option to purchase or hand the vehicle back at the end of the lease.

Depreciation

The loss in value of an asset as it is used.

Early termination fee

The amount the customer pays if they terminate the contract before the lease end date.

Excess mileage

When the mileage is over and above the miles originally specified on your finance agreement.

Excess mileage charge

A charge based on miles driven over the amount contracted in the lease agreement on return of a vehicle.

Excess wear and tear charges

Charges for damages to a leased vehicle that are greater than ‘normal’ or ‘reasonable’.

Final rental/payment

The final vehicle rental transaction paid by the individual, company or firm leasing the vehicle within a finance agreement.

Finance acceptance fee

Usually paid by the customer at the start of a finance agreement, with the first rental payment.

Finance Lease

A finance agreement where the customer pays for use of a vehicle only and is responsible for the final payment; the funding company owns the vehicle at the end of contract.

GAP insurance

An insurance policy which could pay off the lease balance if a lease vehicle is involved in an accident or is stolen.

Lease Purchase

A finance agreement where you pay for the full value of a vehicle via monthly payments and pay a balloon payment at the end of the contract. At the end of the contract you own the vehicle.

Lease term

Length of the contract period, usually expressed in number of months. Typical leases last for 24, 36, or 48 months.

Leasing

A term referring to the “use only” of a vehicle, by a customer entering into an agreement with a finance company.

Lessee

The vehicle hirer, customer or user of the vehicle who signed the lease agreement.

Lessor

The finance/leasing company or the legal owner of the vehicle who sets forth the lease terms.

Maintenance

Offered with finance agreements and includes routine maintenance and servicing, mechanical repairs and replacement parts, tyres and exhausts.

Mileage allowance / miles per annum

The maximum number of miles a leased vehicle can be driven per year without incurring a penalty. Usually 10,000 12,000 15,000 or 20,000.

Monthly payment / monthly rental

This is the scheduled payment for the vehicle and any other extras selected such as maintenance etc.

P11d value

This refers to the vehicle price value when new, together with the additional cost of extras. The value is then used for taxation purposes by the Inland Revenue.

Peppercorn rental

A payment that you pay each year if you want to continue using the vehicle at the end of the contract (only applicable to Finance Lease).

Personal Contract Hire (PCH)

Offers all the benefits of Contract Hire to a private individual.

Personal Contract Purchase (PCP)

Offers all the benefits of Contract Purchase to a private individual.

Residual value

The vehicle’s wholesale value at the end of the lease.

Road fund licence

Road tax.

Underwriting

A process which a finance company goes through in order to decide whether to accept a company’s / a private individual’s proposal (being approved for credit).