Car Leasing and Contract Hire Common Terms

Set out below are some the common terms you will find when looking at taking a Car or Van Contract Hire Agreement.

Annual Mileage or Contracted Contract Mileage

This is the mileage which has been set for your contract. This has a direct influence on the rental you pay and it is important you try to predict accurately this figure.

If you under estimate you will be charged excess mileage at the end of the Contract Hire Agreement.

If you over estimate the annual mileage you will potentially pay a lot more for the contract over the term.

APR - Annual Percentage Rate.

This is a method used for calculating the full cost of the interest and other charges for finance. APR was designed to enable consumers to accurately compare the true cost of borrowing between funders. APR is not applicable to Contract Hire or most Car Leasing agreements as they are not seen as purchase agreements.

Base Rate

The Bank of England sets the base rate each month; the lenders will use this figure to calculate the charges for lending money to their borrowers.

Base Rental

Most Contract Hire providers advertise their rentals pre VAT which is known as Base Rental. It is important to calculate the true rental by adding VAT at the prevailing rate.

Contract Amendments

Typically a Contract Amendment request is submitted to the Contract Hire Company where a customer wishes to amend their contracted mileage or agreed contract term.

Contract Duration

The length of time the Contract Hire or Leasing arrangement is contracted to run for.

Doc Fee

A fee for raising a Contract Hire or Car Leasing agreement. These can vary in amount by individual funder.

Early Termination Charges

An important part of your contract and should be considered before entering into any agreement. If you need or decide to terminate your Contract Hire agreement prior to its natural termination date most Contract Hire providers will levy a fee. Most companies have different ways of calculating Early Terminations but broadly speaking they will be based on numbers of outstanding rentals less a percentage, however this is not compulsory and Contract Hire providers will have their own interpretation on what they will charge.

Effective Rental

If you are a business user and VAT registered you should be able to claim back a proportion of the VAT charged in the rental. The Effective rental is therefore the rental including the amount of recoverable VAT. This term is often used where the Contract Hire agreement has Maintenance included.

End of Contract Recharges

When a vehicle is returned at the end of the contract the Contract Hire Company assesses the vehicles condition. In the event the vehicle is deemed not to be in a condition commensurate with its age and mileage the Leasing Company will charge for the repairs to be carried out. Most companies will be able to supply their interpretation of what they consider is Fair Wear and Tear if requested. Alternatively the BVRLA (British Vehicle Rental and Leasing Association) have their version.

Excess Mileage

If you exceed the mileage set on your Contract Hire Agreement you will be subject to a charge for the 'over mileage' element. This amount is calculated on pence per mile (PPM) basis and can be expensive. If you are likely to be going over your scheduled mileage you may want to contact your Leasing provider to see if a reschedule of the contract would be beneficial.

Informal Extension

Under the terms of a Contract Hire agreement once the vehicle has completed its term the Leasing provider has the right to take the vehicle back without further notice. However most will allow an informal extension where you continue to use the vehicle on an ad hoc basis. In normal circumstances informal extensions only run up to six months. Dependent on the Contract Hire provider's policy the rental could reduce, stay the same or increase. You should seek guidance and approval from the Contract Hire Company on this.

Initial Rentals

The number of payments you make at the start of a Contract Hire agreement is known as Initial Rentals, typically this range from 1, 3 or 6 rentals.

GAP Cover

In the event your vehicle is written off or stolen and not recovered the Contract Hire provider will want to recover the costs associated with the contract in full. If the insurer only pays current market value there could be a shortfall which becomes the lessee's responsibility. Gap cover is designed to address this shortfall. The advertisers at www.ukleasingandcontracthire.com will be able to give guidance on the policies available.

Fully Maintained

With Contract Hire you can generally opt to have maintenance included as part of the agreement. In normal circumstances this will provide all routine servicing, tyre replacement and will pay for repairs not associated with accident damage. If selecting a maintenance contract it is worth looking at what the Leasing Company included and excludes. Some will not cover tyres or restrict the number of sets you are eligible to have. It is also worth confirming the maintence cover included a recovery service in the event your vehicle breaks down.

Payment Profile

This is the number of payments you will be making on your Contract Hire or Leasing agreement. An example of this would be 3+35 which actually means you will be paying a total of 38 payments although the contract terminates at 3 years.

PCP or Personal Contract Purchase

A scheme similar to Contract Hire but where there is the option to purchase the vehicle at the end of the term at a pre-agreed amount (Balloon).

Pooling

Where you have a number of vehicles you may be able to offset vehicles that have gone over their contracted mileage by those that have not achieved their contracted mileage. There are many different interpretations of Pooling and it would be best to confirm the terms with your chosen Contract Hire provider before committing to the contract. You may want to ensure you or your driver automatically has an alternative vehicle whilst yours 'theirs is off the road.

Relief Vehicle

Typically this provision will come into effect with 4 hours, 24 hours or after 48 hours. The cost will be included in the contract and will vary dependant on how quickly you want the vehicle and the type of vehicle you require.

RV - Residual Value.

The amount of money the Leasing provider thinks your vehicle will be worth at the end of the contract. This figure is one of the key elements used when calculating a Contract Hire rental.