Glossary of Car Leasing Terms
Below are some of the terms you may come across in a car leasing contract.
3 + 23
The number of initial payments payable as a deposit (3) followed by the
number of regular payments to be made (23).
Balloon Payment
The final payment of a car leasing agreement that reflects the expected
value of the vehicle. A balloon payment should result in lower monthly
repayments but in some instances the balloon payment may be greater than
the car's value.
Business User
To qualify for 100% VAT recovery on vehicles, the car must be shown to
be intended for business use only and not for private use - including
traveling to and from the user's home.
Company Car
A car available
to employees to be used as a private vehicle and not for the transportation
of goods; is available for private use to an employee earning £8,500
or more per year, and is made available to a company director.
Contract Hire
A financing package for VAT registered companies to minimise risks of vehicle
utilisation by reducing outlay and maximising the control of costs. Protects
companies from the costs of depreciation and disposal for an agreed contract
period and level of mileage.
Contract Purchase
A financing option that allows the purchase of a vehicle on a Conditional
Sale agreement. Useful for the more expensive type of vehicles where
tax relief
restrictions make contract
hire less
competitive.
Deposit
The initial payment required before receiving the vehicle. The more deposit
you choose to pay, the cheaper monthly payments will be.
Depreciation
The reduction in value of a vehicle caused by age, mileage and condition.
Excess Mileage
When leasing a car for a fixed period the customer is effectively paying
for the depreciation of the vehicle - based in part
on an anticipated level of mileage. If the agreed maximum mileage level
is exceeded, the car is worth less and hence an additional charge is
required to compensate the finance company for this additional reduction
in the car's value.
GMFV
Guaranteed Minimum Future Value - this is similar to a balloon payment
with the exception that the amount has been guaranteed by a third party.
This eliminates the disposal risk should the leasee wish to return the
car.
Personal Contract Hire/PCH
A personal agreement for the use of a car with ownership remaining with
the finance company.
Personal Contract Purchase/PCP
For private individuals who want a cost
effective way to finance a car over a fixed period of time. At the end
of the contract the customer can pay the agreed end purchase fee and gain
ownership on the car, return the vehicle or sell it and retain any surplus
beyond the end purchase fee.
PPM
Pence per mile.
RFL
Road fund licence.
Residual Value
The amount for which the car can be sold at the end of the
contract (including VAT).
SMR
Service, maintenance and repair.
Maintenance Option
The element within the agreement which covers servicing, repairs
and tyre replacement.
WLC
Whole life cost - this is the total cost, including depreciation, servicing,
fuel etc., incurred in running a vehicle for a defined period of time.
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