Leasing Glossary

Car Leasing and Contract Hire can be a bit confusing at first. To help you understand the key words and terms of car leasing and contract hire we have created an A to Z glossary detailing the most used car leasing jargon and terms. 

Car Leasing & Contract Hire Terminology: A to D

Annual Percentage Rate:

Annual Percentage Rate, commonly referred to as just APR, lists the yearly interest that will apply to a particular lease contract.


This refers to missing or owed debt after a payment isn’t made. The term is typically associated with payments made on a regular basis.

Balloon Payment:

Balloon payments are put in place to lower monthly leasing fees. A large percentage of the vehicle’s value can be made as a final payment, if you wish to own the car once the contract has expired.

Breakdown Recovery:

This is a mobile response unit that will be sent to your location in the event of a car breakdown. It pays to know whether breakdown recovery is included in your leasing contract.

Business Leasing:

Car leasing can be acquired on a business contract and proves popular because of the money saving opportunities.

Car Leasing: 

Car leasing involves renting the vehicle for a certain period of time. Once the contract has expired, the lender hands the car back to the leasing company.

Consumer Credit Directive (CCD):

These are EU regulations that have been established to ensure all consumers receive good and easy to understand advice when it comes to finance.

Credit Score: 

A score reflecting your current financial situation. Aspects such as loans and missed payments contribute to your overall score. To be accepted onto a leasing contract, you will need a reasonably good credit score.


A lump sum of money put down on the leasing car at the start of the contract. For Car Leasing, this tends to be three-times the monthly payment.


The amount of value lost from a car over a certain period of time. New cars can depreciate in value up to 35% in the first three years.

Car Leasing & Contract Hire Terminology: E to G

Early Termination Fee:

A charge that comes into effect if you wish to end your leasing contract early.

End Of Lease Purchase Price:

Once the leasing contract draws to a close, there will be an opportunity to buy the vehicle at the ‘end of lease purchase price’ value. This takes into account depreciation rates over your leasing period.


Equity is essentially how much money you’re in profit. If you owe less finance than the car is worth, you have equity. If you owe more than the car’s value you’re in negative equity.

Excess Mileage Charge:

When signing a leasing contract you’ll agree to a set mileage you can journey over the course of the lease. Exceeding this stated mileage could incur an extra charge.

Excess Wear and Tear Charges:

This is a fee applicable if the vehicle is returned to the lender in a sub-standard state. The leasing company should provide guidelines of the expected car condition.

Fixed Interest Rates:

The opposite to variable interest rates. Fixed interest rates remain the same throughout your leasing contract. This gives you the knowledge that payments won’t increase.

Fuel Economy:

This is the efficiency of a particular vehicle. The fuel economy highlights how much petrol or diesel a vehicle will use. This is measured in miles per gallon (mpg), so the higher the mpg, the more you’ll save.

GAP Insurance:

Gap insurance helps cover the extra cost when your car insurers won’t pay the vehicle’s full value. This includes circumstances such as your vehicle being stolen or written off in an accident.


A guarantor is usually a friend or family member who agrees to make your payments if you fall into arrears. With a guarantor, there’s a greater chance of being accepted onto a leasing contract.

Car Leasing & Contract Hire Terminology: H to P


Once half of the Hire Purchase or Personal Contract Purchase agreement has been paid, there’s an opportunity to terminate the contract and return the car. This is only available with selected lenders.

Hire Purchase:

Hire Purchase is an alternative to car leasing, whereby you pay monthly instalments and the vehicle is yours at the end of the contract. The car belongs to the Hire Purchase firm until the final payment and instalments can be much larger as opposed to leasing.

Invoice Price:

The price of a vehicle without taking into account extra costs that are required to legally get the car on the road. The invoice price tends to be used for insurance claims.

Lease Purchase: 

Differs to a regular lease contract, as once the term has been served there’s an opportunity to purchase the vehicle at a reduced price, after depreciation has been calculated.

Lease Term:

The length of your lease contract. Car leasing contracts are typically agreed between 12 and 60 months.

Manufacturer Warranty:

A warranty that applies to brand new vehicles. This is provided by the vehicle’s manufacturer (Ford, BMW, Toyota etc.) and not the leasing company. Manufacturer warranties can last anywhere up to seven years.

Mileage Allowance:

The agreed mileage you’re allowed to travel over the period of your leasing contract. Exceeding this can result in an extra charge.

P11d Value:

This is the total value of a vehicle plus any extras. It’s this cost that Inland Revenue will use for taxation purposes.

Part Exchange:

This involves exchanging your current vehicle in when buying or leasing a new vehicle. The value of your car is subtracted from the amount you must pay for the new one.

Peppercorn Rental:

This is an annual fee payable if you wish to extend your contract (only available with finance leasing).

Personal Contract Purchase:

A Personal Contract Purchase (PCP) is more flexible than a standard leasing agreement. Once the contract expires, you have an opportunity to purchase the vehicle. If not, you can return the car and even take out a new contract if you wish.

Personal Car Leasing: 

Personal leasing refers to car leasing for individuals rather than a business. Personal leasing benefits motorists by offering a cheaper method to drive a new car, as opposed to paying all the cost upfront.

Car Leasing & Contract Hire Terminology: Q to Z

Residual Value: 

This is the future value of a vehicle, as calculated by the leasing company. For instance, a car worth £21,000 today may be worth £15,000 in three years time. This is the residual value. Those leasing a vehicle will pay the difference between the current value and residual value over the three years – which in this case is £6,000.

Sale of Goods Act:

The Sale of Goods Act concerns any goods sold and these must meet certain standards. When buying a used car, the vehicle must be of satisfactory quality, be as described and be fit for purpose.

Secured Loan: 

This is a standard loan taken from your bank or building society, but secured against a high value possession. This could be your car or home. Failure to meet payments and subsequently falling into arrears could result in repossession.


This is often the very final payment of a leasing contract, whereby all outstanding costs are paid in full.

Sub-prime Finance:

This is typically for those with poor credit history. Some mainstream lenders will provide loans to those with bad credit reports and is referred to as sub-prime finance.


This is the process to determine a candidate’s suitability for car leasing. Based on the company’s or individual’s score, they may or may not be accepted for credit.

Unsecured Loan:

A standard loan, which isn’t secured against any of your own possessions. Unsecured loans tend to attract higher interest rates but are safer in the event you fall into arrears.

V5 Document:

The V5 document is a vehicle’s logbook and includes information such as the registered owner and their address. Whenever buying or selling a vehicle, the V5 document must be completed and signed, before being sent to the DVLA.

We'll continue to update our Leasing terminology glossary if any new terms appear.

We hope you found this helpful. If you have any questions you can always call or contact us and we would be more than happy to help. 

About the Author: Autograph Leasing.

Autograph is a Car Leasing & Contract Hire broker. We provide great car leasing options for both business & individuals. Autograph is always willing to help customers find their perfect vehicle lease as well as providing great customer service & car leasing advice. For any further questions, advice or car leasing enquiries you can call them today on 01634 687070!