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Anyone who has ever bought or leased a car will know that there is a lot of jargon in the motoring industry. So rather than be confused with important terms when it comes time to seal your car leasing deal, here is a quick guide to some of the most important leasing-related terminology.
CAR LEASING - JARGON BUSTING
3 + 35 - The number of initial payments payable by way of deposit followed by the number of payments to be made.
Acquisition fee – Usually present in all leases, though sometimes referred to as an arrangement fee or a bank fee, the acquisition fee is charged by leasing companies and not dealers.
Application fee – Many car leasing companies will request an up-front fee. This is usually the first three months of the leasing agreement up-front – but it can be a separate fee altogether.
APR – This is the annual percentage rate – the true rate of interest you will pay on a financial agreement.
Balloon payment – The final agreed payment on a car leasing agreement.
Capitalised cost – Referring to the amount being financed with a lease after all expenses are taken into account. So, for example, this will be the negotiated price of the vehicle plus any taxes and add-on fees.
Car finance – The way in which you pay for your vehicle. This could be done with a leasing agreement, in which the car is never yours. Or you could choose a purchasing method, such as a car loan where the car becomes yours from the outset but you must make payments (with interest) to a loan provider.
Car lease assumption – This is if someone takes over the payments of the leasing agreement for you. Most car leasing companies will be willing to accept this, while others may request a new lease agreement.
Depreciation – This is how much the car’s value reduces over the leasing period. All vehicles depreciate in value as soon as you drive them. The lower the level of depreciation, the less you will have to pay.
Down-payment – The money you pay initially (‘up front’) to reduce the amount owed on the lease.
Early termination – If you end the lease agreement before the set term is complete, it is known as ‘early termination’. This can be difficult as most car leasing agreements are designed to run for the full term. Consequently it is likely that you will be charged the full interest for the remaining months of the lease term.
MRP – Standing for the manufacturer’s recommended price residual value. This is the value of the vehicle at the end of the agreement – stated at the beginning of the agreement.
MSRP – This is the manufacturer’s suggested retail price. This is the value of the vehicle before the leasing agreement is determined.
No money down car lease – This is a leasing agreement that does not require any cash down-payment.
P11D Value – A term used by the Inland Revenue for tax purposes. This relates to the value of the vehicle after the cost of extras.
PCP – Personal contract purchase (sometimes referred to as personal contract plans). With a PCP agreement you have an option to pay the final sum to the dealer to own the car, or alternatively you can hand it back.
Prepaid lease – This is when you make a large single payment at the beginning of the lease term. This is not usually accepted by most leasing companies. However, if you can afford it, it is a good way of avoiding interest and other finance charges.
Residual value – In car leasing, the residual value is the predicted value of the vehicle at the end of the lease term - the higher the residual value, the lower the monthly payments of your lease agreement.
RFL – Road fund licence, more commonly referred to as road tax. If you do not pay road tax and you are caught, you are likely to receive a heavy fine.
SMR – A simple abbreviation for ‘service, maintenance and repair’.
Trade-in value – Some leasing companies might accept your old car as a trade-in though this isn’t as common as with purchasing agreements. They take the value of your old car and use that to reduce your leasing payments.
Wear and tear – This refers to one of two conditions in car leasing contracts. This could mean that the lessee is responsible for replacing normal wear and tear – such as new wiper blades or brakes, or whatever is necessary. However, some car leasing companies will request that the vehicle does not have excessive wear and tear when it is returned to them. They will carry out an inspection of the vehicle and if they find problems or damages, they will bill customers for replacements and repairs. Consequently, it makes sense to keep your vehicle in good condition and to inspect it closely before you return it – it’s better to have the repairs carried out by a mechanic you trust than risk being charged excessively for a leasing company’s in-house repairs.
With maintenance – Many car leasing companies might offer ‘with maintenance’ as part of its package. This means that they will cover the general costs you encounter – usually this will include servicing, tyre replacement and repairs.
WLC – An abbreviation used to refer to the ‘whole life cost’. That is the total cost of running a vehicle over a set period of time and takes into account servicing, fuel, etc.
In the final part of the car leasing guide we’ll look at some frequently asked questions.
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