If you are thinking about becoming a first-time car lessee, we bet you are a tad nervous, and the unfamiliar terms and jargon are probably adding to the confusion.
To help you feel more comfortable, here’s a quick guide to get you acquainted with some of the most important terms you will encounter in the world of personal car leasing. Make sure you read these before you start talking to a car lease company.
1. Personal Car Leasing:
Let’s start with the basics – Personal car leasing in the UK(also called personal contract hire) is a type of lease that is for an individual, rather than a business. The car is leased for the length of the contract as a personal vehicle but is returned once the term of the contract ends.
This should not be confused with business car leasing where a business rents the car for its employees or a PCP (personal contract purchase) where you have the opportunity to buy the car once your contract finishes.
2. Annual Mileage and Excess Mileage:
Your monthly payments will be calculated on the basis of the annual mileage you agree to. In the UK a personal car lease contract will have a fixed mileage amount and will also state the penalties for exceeding this mileage.
This excess mileage for leased cars is put in place to protect the value of the vehicle at the end of the term. The exact penalty will be included in your contract and is usually in the form of a cost per mile.
3. Fair Wear and Tear:
While leasing a personal car, you will also have a clause regarding fair wear and tear in your lease contract. Basically, you will need to return your vehicle in an acceptable condition at the end of your contract.
Extensive guidelines set by the British Vehicle Rental and Leasing Association (BVRLA), are followed to ensure the rights of both the parties. If your leased car doesn’t pass the inspection, then you could be charged excess wear and tear costs.
4. Initial Payment and Processing Fee:
The initial payment refers to the first payment which you will make right at the start of the car lease contract. This will be part of the entire rental amount and is usually equivalent to 3, 6- or 9-month’s rental amount to be paid as a lump sum.
If you choose to pay a higher initial amount, then your subsequent monthly installments will be lower. For personal car leasing, some dealers charge a processing fee for making the lease agreements and handling the entire process.
5. Lease Term and Early Termination Fee:
This is another clause you need to pay attention to – the lease term refers to the entire length of your contract and for PCH (Personal contract hire) this is normally between 2-4 years.
If you choose to end your contract early, then you will be liable to pay an early termination fee which is usually a percentage of the remaining monthly rentals.
Before you enter any contract, especially when finances are involved, you must have as much information as possible before signing and understand all the jargon and terminology.
Hopefully our mini-glossary, will give you some basic knowledge of the major terms of a car leasing contract.
Now, go ahead and negotiate a good deal and happy driving!