Leasing jargon buster

Are you thinking about leasing a car but aren’t sure what all the acronyms and jargon mean? It can be confusing to completely understand a lease contract, so we’ve compiled a handy guide to all the terms that might not be crystal-clear.

If you’ve seen a confusing term that we don’t have in this article, tweet us @carwowuk and we’ll do our best to explain it.

• Admin fee
• BCH
• Broker
• BVRLA
• Contract length
• Deposit
• Depreciation
• Excess mileage/ mileage cap
• Fair wear and tear
• Initial payment
• Lead time
• MPG
• PCH
• PCP
• Residual value
• Road fund licence
• VAT

Admin fee

You’ll have to pay an administration fee with most lease deals. It may have a slightly different name depending on the lease company, and chances are that if you find a deal without such a fee, you’ll be paying more in your monthly repayments.
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BCH

BCH stands for Business Contract Hire, and is a type of leasing deal that favours companies by allowing VAT to be claimed back. For more info on BCH, read why it’s cheaper than a personal lease.
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Broker

A broker sits between the customer, manufacturers and leasing companies. They are impartial and work to get the best deal for a customer, and can also provide advice, support and professional accreditations for their services.
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BVRLA

The British Vehicle Rental and Leasing Association oversee car leasing. They’re responsible for licensing brokers and have created the Fair Wear and Tear guide you’ll be given in your lease.
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Contract length

In a lease deal the length of your contract is normally described as 3+23 or something similar. In this example, the down payment amounts to three times the monthly payments, followed by 23 months of paying the agreed fee. Some lease deals require the equivalent of six or even nine months’ cost upfront, which can help to bring the monthly cost down.
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Deposit

Deposit is a sum of money that you may have to pay before buying a car. A higher deposit can mean lower monthly leasing payments, and many manufacturers have finance calculators to tailor your agreement. If you can’t, or don’t want to, stump up the deposit, a lot of cars can be bought without a deposit, although of course the monthly payments will be higher.
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Depreciation

Every car loses value with every mile it’s driven. This is a car’s depreciation, and it varies on each individual car. It’s based on a number of factors including the make and model, age, condition, mileage, reliability, popularity and efficiency. With a lease deal it’s not your problem – you’re not buying the car so needn’t worry about its future value.
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Excess mileage/ mileage cap

Most finance and leasing agreements will have a set mileage cap (usually around 8,000 miles for a leasing deal) and you’ll be charged for every mile you go over that limit.
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Fair wear and tear

The leasing company will expect the car to be handed back in a good condition, but will know that some wear and tear is inevitable. You’ll be given a guide that’ll tell you what ‘fair wear and tear’ means by your leasing company. If your car has a lot of wear and tear or some unrepaired damage, you’ll be charged at the end of your contract.
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Initial payment

Sometimes used interchangeably with deposit, a non-refundable initial payment is more commonly found in lease deals – it’s usually a multiple of three months’ rental (eg 3, 6 or 9). For example, a 6+35 deal requires an initial payment equal to six months’ rental payments, followed by 35 monthly instalments.
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Lead time

If you’re buying a brand-new car, the lead time is the period between you configuring the car and it being shipped to your preferred dealership. With the car being made to your specifications in the factory, it can take weeks or even months (especially with cars made on the other side of the world) to get your car.
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MPG

Miles per gallon is the measure of how fuel efficient a car is, calculating how many miles a car can cover on a gallon (4.54 litres) of fuel.
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PCH

Personal Contract Hire is more commonly known as a personal car lease, with fixed monthly payments but no option to own the car.
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PCP

Personal Contract Purchase differs from PCH or leasing because you have the option to buy the car at the end of the contract, or you can either re-finance the remaining money owed or hand the car back. Most car finance deals will be PCP.
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Residual Value

Residual value is closely linked to depreciation – it’s how much your car will be worth after the finance agreement has ended. It helps to determine how much your lease payments will be.
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Road fund licence

Also known as car tax, or Vehicle Excise Duty (VED).
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VAT

Lovely tax, currently at a rate of 20%. You’ll have to pay VAT unless your car is on a business lease and used for company purposes.
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Check out our other leasing guides for more information:

• Should you lease or buy your next car?
• What are the extra costs of a lease?
• What happens at the end of your lease?
• Advantages and disadvantages of leasing
• Should you lease a car through a dealer or a broker?
• Does leasing a car affect your credit score?
• Why is business leasing cheaper than personal?

Save money on your next car

Visit our leasing tab at the top of the page to find the best deal on the car you want.