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A- Z of car leasing

Agreement Period:
The length of the contract period, usually 24, 36 or 48 months

This stands for annual percentage rate and it's the simple way to compare one finance arrangement with another: the lower the APR, the cheaper the loan. Only applicable to Hire Purchase agreements, not car leasing.

Balloon Payment:
A one-off payment made at the end of certain leasing agreements, sometimes referred to as a residual value.

B.I.K Benefit in Kind:
Company car tax. If an employee has a vehicle given to them by their employer they have to pay tax from their personal salary. As of 6th April 2002 it is based on P11D value (price of car), the amount of Co2 emissions and the drivers personal tax liability (23% or 40%).

Base rate:
The interest rate that finance houses use to calculate interest on loans. When general interest rates change, the base rate normally changes too. The higher the rate the more it costs to finance vehicles.

Car downtime:
Or off-road. This the time that your car is off the road for servicing or repairs.

Contract amendment:
This is where any of the terms of the agreement are changed , such as the mileage limit or contract length.

When your car has reached the end of the deal and is no longer on hire. Also know as de-fleeting.

The amount of value your car loses as it ages.

Early termination:
Cancelling the lease agreement prior to its termination date

Effective rental:
Applies to Contract Hire or a Finance Lease. This is the actual monthly rental a company will pay once they have claimed back their VAT. (That can be reclaimed)

Excess mileage:
Excess mileage is applicable when you exceed the mileage limit of your leasing contract. You will be charged at a pre-agreed rate for every extra mile over the mileage limit.

At the end of the contract period a formal agreement to extend the length of the contract can be agreed.

Final payment:
The last payment of the lease.

Delivery Charge:
All manufacturers levy this charge. It is classed as a charge for delivery from the factory to the dealership. Often leased cars are delivered to a convenient place at no expense.

GAP insurance:
GAP stands for guaranteed asset protection. If your car is written off or stolen, your car insurance will pay out the car's market value. However this figure can be lower than the amount left outstanding to the finance company, leaving the lessee liable for the difference.GAP insurance covers that shortfall by paying out the difference.

Initial payment:
Sometimes called IP, this is a payment you make before the car is delivered. On a lease agreement this is normally the equivalent of three monthly rentals.

List price:
The cost of the vehicle in the manufacturers price list. Usually shown on quotes including VAT. This does not include any extras, delivery, RFL, etc…

Minimum guaranteed future value:
Also known as MGFV and, sometimes, as guaranteed future residual value. It is the lowest amount that your car is guaranteed to be worth at the end of a contract purchase deal. This is normally applicable to a Personal contract purchase.

P11D Value/Tax list price:
This is the total value of the vehicle for the purpose of the Inland Revenue. This price includes any accessories,extras, first registration fee, 12 months VED/RFL, delivery charges and VAT etc.

The amount payable on a purchase agreement (H.P, Lease Purchase, Contract Purchase). No VAT to add

When you have a fleet of vehicles some leasing companies allow you to 'pool' mileages. In other words the mileage across the fleet is averaged out.

The amount payable on a rental agreement (Contract Hire and Finance Lease). Always + VAT.

Residual Risk:
The residual risk is the risk that the vehicle will not meet its anticipated future disposal value. This is not applicable on Contract Hire leases as the risk is taken by the leasing company.

Residual value:
The value of the vehicle at the end of the contract. Leasing companies use historic data and market information to predict future values.

RFL - Road Fund Licence:
Road Tax payable for 6 or 12 months.

Sale and leaseback:
This is when a company sells its cars to a leasing company and leases them back, with the benefit of a cash injection.

Total OTR/On Road cost/Invoice Value:
Is the total price (inc. VAT) that the finance company will pay for the car including VAT & 12 months road fund licence. All vehicles new or used must be supplied with 12 months RFL.

All companies and individuals wanting to proceed with acquiring a vehicle on any form of finance will have to be underwritten in most circumstance even if they already have vehicles on finance. The underwriters are looking to see if the monthly payments can be met. Underwriters view the risk as not only the monthly figure but also the total cost of the vehicle.

Value Added Tax

VAT Qualifying cars:
For a car to be used on Contract Hire or Finance Lease the car has to be VAT Qualifying. All brand new un-registered vehicles are VAT Qualifying. Not all used vehicles are VAT Qualifying; cars that have been owned by private individuals can never be VAT Qualifying.

VED Vehicle Excise Duty (RFL Road Fund Licence):
All vehicles purchased on behalf of a finance company whether new or nearly new should include 12 months VED/RFL.

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