Choosing a new car should be an exciting time, however the paperwork involved can make the whole process seem daunting. This is exacerbated by the complex terminology used, which makes understanding your contract a total headache. Do you know your flat rates from your fixed? The team at Meridian Vehicle Solutions is here with a jargon busting article sure to help make your paperwork seem less intimidating.
Administration Fee
Sometimes referred to as a processing or documentation fee, an administration fee is the cost of processing all paperwork relating to your vehicle lease or sale. It is a compulsory charge that must be paid to finalise the transaction.
Annual Mileage
When finalising any vehicle contract, you may be asked your annual mileage. This is an estimate of the amount of miles that you expect to clock per year. This figure helps calculate the market value of your vehicle at the end of your lease; for those who have a high annual mileage, there will likely be more depreciation.
Annual Percentage Rate (APR)
More commonly known as APR, this covers the amount of additional interest that you’ll repay.
Appointed Representative
An appointed representative is an individual or firm who carries out regulated activities, acting as an agent for a company approved by the FCA.
Balloon Payment
A balloon payment is a large lump sum, paid at the end of your financial agreement. Once this is paid, you can take ownership of the vehicle.
Benefit in Kind (BIK)
A Benefit in Kind (BIK) is an additional perk given to an employee that is not included in their salary. One of the most common BIKs is a company car; however, this will be subject to taxation.
Business Contract Hire (BCH)
This type of leasing agreement covers cars leased by a business for use by a Director or employee. BCH is typically cheaper than a personal leasing contract and up to 50% of the VAT can be reclaimed by a business that is able to reclaim its input VAT.
British Vehicle Rental and Leasing Association (BVRLA)
The BVRLA is the trade body for car rental and leasing companies. They enforce industry standards and ensure their members adhere to guidelines and regulations.
Company Car Tax
If your company car is also used privately, it will be subject to company car tax. This varies depending on the type of vehicle and the amount of CO2 it emits; the more pollutants released, the higher the tax band. For the year 2022/23, the tax bands range from 2% to 37%.
Conditional Sale
Similar to a hire purchase, a conditional sale is a loan agreement that allows you to lease a car for a fixed period of time. The leaseholder is the ‘registered keeper’ of the vehicle and responsible for insuring and maintaining it, whilst the finance company remains the legal owner. However, unlike a hire purchase, the customer will automatically own the vehicle once the finance has been repaid in full.
Contract Hire
Sometimes referred to as an operating lease, contract hire is the process of leasing a vehicle for a set period of time, without the option of ownership at the end of the term.
Cooling-Off Period
A cooling-off period allows you to withdraw from your financial agreement with no penalties. Under the Consumer Credit Directive (CCD), this period is 14 days.
Credit Agreement
This is the legally-binding agreement between you and the finance company. You will receive a copy at the beginning of your contract.
Credit Rating
Based on your previous credit and debt history, lenders use this information to determine what rates you can be offered.
Depreciation
The market value of a car will decrease over time; this is known as depreciation. This can vary between vehicles based on many factors: vehicle model, popularity, annual mileage and age to name a few.
Distance Sale
As the name suggests, a distance sale occurs when the consumer buys the product without any face-to-face contact with the retailer. This is increasingly common in the post-pandemic era and is protected by unique consumer regulations.
Excess Mileage
An annual mileage cap is typically placed on every lease deal. Should you exceed this, you will be subject to excess mileage costs; these are usually charged on a rate-per-mile basis.
Fair Wear and Tear
The BVLA provides a ‘fair wear and tear’ guide, which outlines the deterioration or wear and tear expected over the course of the term and mileage of your financial agreement. Any major damage or faults will not be covered and you may be subject to additional charges.
Financial Conduct Authority (FCA)
The FCA is a UK financial regulatory body that regulates the conduct of financial firms to protect consumers and provide a fair and honest financial market.
Fixed Rate
This is an interest rate that remains unchanged for the duration of the financial agreement.
Flat Rate
A flat rate of interest is calculated based on the initial amount borrowed at the beginning of the agreement and is not adjusted to consider the outstanding amount.
Guaranteed Asset Protection (GAP)
GAP is a form of insurance that covers against depreciation. It covers the difference between the original cost of the vehicle and its value after damage, to financially protect you in the event of a claim.
Hire Purchase
Similarly to a conditional sale, a hire purchase is a loan agreement that allows you to lease a car for a fixed period of time. The leaseholder is the ‘registered keeper’ of the vehicle and responsible for insuring and maintaining it, whilst the finance company remains the legal owner. However, unlike a conditional sale, buying the vehicle at the end of the lease term is optional.
Lease Purchase
This purchase agreement is the same as a PCP, the only difference being that the final balloon payment must be paid at the end.
Part Exchange
Part exchange is the process of trading in your old car to contribute towards the cost of a new vehicle.
Personal Contract Hire (PCH)
A PCH is effectively a long-term car rental service, allowing you to drive the vehicle of your choice for a set term and fixed annual mileage with no option to purchase at the end.
Personal Contract Purchase (PCP)
A PCP is a car lease designed for personal use. The final balloon payment is optional, you could simply hand back the keys and begin a new agreement at the end of your contract.
Rate Risk
Rate risk is the probability of an asset decreasing in value due to fluctuations in the interest market.
Residual Value
This is our forecast as to the future value of a car at a given age and mileage.
Road Fund Licence
Road fund licence - colloquially referred to as road tax - is an annual Government payment that must be paid by anyone with a roadworthy vehicle. The amount varies depending on the vehicle and the amount of CO2 emitted.
Short Term Lease
A short term car lease is a rental agreement that allows you to drive a vehicle for a fixed period of time - usually between three and twelve months.
Vehicle Identification Number (VIN)
This is the unique number assigned to every vehicle, to protect against fraud and theft. Unlike a number plate, it can’t be changed.
V5
A V5 is the logbook issued with every vehicle by the DVLA. This certifies the ownership of the vehicle by establishing the Registered Keeper.
Contact Our Car Leasing Company Today
Meridian Vehicle Solutions is an independent car leasing company, serving motorists across Chesham, Hemel Hempstead and nationwide. We offer premium vehicles at affordable prices for both business and personal use.
To discuss our competitive rates or book an appointment, contact our friendly team today.