Car Leasing Jargon Buster
If you are new to the world of car leasing, there are many terms that are commonly used that may seem alien to you. So here is our guide to all the jargon you may be faced with.
Types of Car Finance and Terms Used
Personal Leasing/Business Leasing
On our website there are two prices displayed. One is for personal leasing and one is for business leasing.
The personal leasing price is for those individuals who will be paying for their lease from their own personal bank accounts and so has the cost of VAT added.
The business leasing price is for those who will be paying for their lease through their business account. With this price the VAT has not already been added as many businesses will be able to claim some, or all, of this cost back.
Personal Contract Hire
In a personal contract hire you will pay an initial rental followed by monthly rentals for use of your car for the agreed contract length and mileage. At the end of your contract you will hand the car back to the funding company. There is no opportunity to own your vehicle.
Personal Contract Purchase
With a personal contract purchase you will pay a deposit followed by monthly payments for the agreed length of your contract. When your contract ends you can choose to pay a larger final payment called the 'Guaranteed Future Value' and own your car, or you can return your vehicle to the funder without the need to make the final payment (subject to condition and mileage).
A finance lease is a method of funding for businesses. A monthly rental is paid for the use of the vehicle, which always remains the propery of the funder, part of the cost of the vehicle can be deferred to the end of the agreement creating a larger ' balloon rental'. At the end of the lease agreement the vehicle is sold to a third party. If the price it is sold at exceeds that of the balloon rental the business can keep the profit. If the sale price is below that of the balloon payment, the business will need to pay the shortfall.
In a hire purchase agreement, you will be paying the total cost of the car spread over an agreed upon number of months. At the end of the contract, you will be the legal owner of the car having made all of the payments.
When a new car has been driven its value decreases. This reduction in the value of your car is called depreciation.
The residual value of a vehicle is the name given to the value the car will have, after being driven, in the future. This value is used to calculate the cost of the monthly rentals and 'balloon payments'.
Your Car Leasing Contract
If you are interested in leasing a car you can ask a broker to send you a quote that will be personalised to your circumstances. You can choose which car you would like, how long you would like to drive it for, and even if you would like any optional extras on your vehicle. You will then be sent your quote outlining the cost of your initial rental payment and subsequent monthly rentals. This quote is obligation free.
This refers to how long you would like to lease the car. It is expressed in terms of months. You will most likely have the following contract lengths to choose from; 24,36,48 and 60 months, or you could choose anything in between!
When you begin leasing a vehicle you will be asked to make an initial rental. This is normally a multiple of your monthly rental. For example, if your monthly rental is £100 and you are putting down a 6 month initial rental, your first payment will be £600. The options for initial rental are usually 1, 3, 6 or 9 months. This is not a deposit and will not be returned to you at the end of your lease.
You will see a payment profile expressed as two numbers eg 6+47. In this example there is a 4 year contract. The total cost of the lease has been divided into 53 payments, in this case 6 times the monthly rental is being paid as the initial rental in month 1 of the contract followed by 47 months of the fixed monthly rental. This is referred to as a spread rental profile, other options are available.
Mileage per Year/ Excess Mileage Charge
When you are thinking of leasing a car and request a quote, you will need to provide an annual mileage to base the quote on. You need to try and be as accurate as possible when you choose this figure, most companies will offer between 6,000 and 50,000 miles per year. The more miles you travel, the more value the vehicle loses and so the higher your monthly rentals are going to be.
It is ok to drive under the amount of miles per year you choose, but if you go over your agreed mileage limit you will be charged for every excess mile. The price of this charge varies from funder to funder and vehicle to vehicle.
Some brokers charge administration or processing fees in addition to your lease cost. This can create additional income enabling them to advertise at a lower monthly rental. At Rivervale, we do not do this, as we believe in transparency. So the price you are quoted is the price you will pay, without any extra charges. However, if you are quoted elsewhere, with a separate admin charge, it is important to consider the whole life cost of the vehicle including these charges.
Funder Maintained/Customer Maintained
When you lease a car, you have two options as to how you would like to maintain that vehicle. You can choose to have your vehicle maintained by the funder. This means you will pay a little extra in your monthly rentals to pay for all your manufacturer recommended servicing and replacement wear and tear items including tyres. Or, you could choose the customer maintained option. This means you will be responsible for paying for each service and replacement items as you go.
If you have entered into a lease and need to end that agreement before the official end of the contract, this is called an early termination. There will be a charge associated with ending your contract early. Typically, this can be 50% of your outstanding rentals, but you will need to request a quote from the funder at the time.
Fair Wear and Tear
When you enter into a personal or business contract hire agreement you will be returning your vehicle to the funder. The funder will expect your car to be in good condition and will assess your car in line with BVRLA fair wear and tear guidelines. If any damage is found outside of these guidelines you will be asked to pay for repairs.
When you apply for a car lease you will need to have a credit check. This will look at your history of borrowing and paying back money as well as your total current debts. If you have a low credit score you are less likely to be accepted for a vehicle lease.
When a leasing broker advertises that a part exchange is welcome, this means you can take your old car as a trade in. The value of your old car can go towards paying some of the cost of your lease, and it provides an easy way to dispose of your old car.
If you are entering into a lease you will be offered the opportunity to take GAP insurance. This stands for Guaranteed Asset Protection. If a car you were leasing was written off or stolen, you would make an insurance claim in the usual way. You will also need to settle your lease with the funder. The funder will provide a figure for the sum of money they require to cover the cost of the agreement. It may be the amount your insurance company is willing to pay out for the car is less than the amount the funder requests in their settlement figure, this is the amount GAP insurance covers. Without GAP insurance you would need to pay for this shortfall yourself.
Key Vehicle Information
On leasing websites, you will see many cars advertised as 'in stock'. This does not mean the vehicle is at the business premises, it means the vehicle has been physically built. This usually means there will be a short waiting time and you could have your new vehicle delivered in a few days or weeks. Vehicles not marked in stock may need to be ordered and built, this will mean a longer wait to receive your vehicle, but does mean you can add any extras you would like.
All vehicles are placed into an insurance group, which considers factors such as how desirable the car is, how expensive parts are, and how safe the vehicle is. Insurance groups range from 1 - 50. As a rule of thumb, the lower the insurance group the lower the insurance cost.
This stands for miles per gallon and can provide a guide as to how much money you will be spending on fuel. The higher this number the more miles you will get from a tank of fuel.
The P11d value is the price of a vehicle for tax purposes. It includes the cost of the car, any fitted extras, and the cost of delivery. It excludes road tax and the first registration fee.
Company Car Tax
On all of our vehicles you will see a company car tax calculator displayed. If your company is paying for the car you will be driving you will need to pay a kind of tax called Benefit-In-Kind, which is more commonly called company car tax. Our calculator gives you a guide as to how much you may need to pay.
People Involved in your Car Lease
The funder is the company who will be buying the vehicle. You will then be paying the monthly rentals to the funder for usage of the vehicle.
Rivervale is a broker. This means we sit between the customer and the funding company. We search deals provided by a range of different funding companies to find the most competitive prices for our customers.
The British Vehicle Rental and Leasing Association is the trade body for the vehicle rental and leasing sector. If a broker or leasing company is a member of the BVRLA it will abide by the BVRLA's codes of conduct, will be inspected, and receive training to ensure customers are dealing with a reputable company and will be treated fairly.
This stands for the Financial Conduct Authority. This body regulates businesses who offer financial products. If a broker or leasing company is authorised by the FCA they will have to comply with all of their regulations, giving the customer peace of mind.
If you are still unsure about any aspect of car leasing, you can always call the Rivervale Account Managers on 01273 433480!
The comments above do not necessarily reflect Rivervale's views unless clearly stated.