Glossary of car finance terms
Back to 'Expert guides'Don’t know your 6 + 35 from your BIK? Don’t worry, we appreciate that leasing can be a confusion of terms at times. But we aims to keep things simple here at Leasing.com.
Below you’ll find a brief glossary that covers some of the most common phrases you’ll happen upon when exploring financing your next car.
6 + 35 etc
You’ll see this on lease deals. The first number is the initial payment, which is a multiple of the monthly amount, followed by the number of monthly payments to be made. There is generally 1, 3, 6, 9 or 12 months upfront.
Application Fee
An initial fee, often levied by finance companies, payable on signing of a finance agreement.
Approved Mileage Allowance Payment (AMAP)
See ‘Pence per mile’.
APR
Annual Percentage Rate - The true rate of interest you are paying on a finance agreement.
Balloon Payment
The final payment of a finance agreement.
Benefit In Kind (BIK)
If an employee uses a company-owned car for their work commute and private use, then this is the rate of tax they pay, according to their income. Exactly how much is decided by the value of the car, CO2 emissions (the lower these two figures, the less it will cost) and whether it has a petrol or diesel engine. Electric and hybrid vehicles also have a lower BIK rate.
Depreciation
The reduction in value of a vehicle caused by age, mileage and condition.
GAP Insurance
Guaranteed Asset Protection (GAP). It is an insurance covering losses arising as a result of the amount payable by insurers in the event of a write-off being insufficient to clear the outstanding finance.
Guaranteed Minimum Future Value (GMFV)
Also known as ‘Optional Final Payment’, GMFV is how much a car will be worth at the end of a contract. It protects the customer against any potential fall in used vehicle values.
Hire Purchase (HP)
A purchase system which spreads the cost of a vehicle, allowing the buyer to pay for a vehicle in regular, usually monthly, instalments while being able to use it. If the buyer fails to make a payment, the vehicle may be possessed.
MRP
Manufacturers Recommended Price Residual Value - the value of the vehicle at the end of the agreement, normally estimated at the beginning of any agreement.
P11D Value
The value of the vehicle, being the price when new together with the cost of extras. This value is used by the Inland Revenue for taxation purposes.
Personal Contract Hire (PCH)
Leasing is actually known as Personal Contract Hire (PCH)
Personal Contract Purchase (PCP)
Similar to hire purchase and contract hire, a PCP deal allows a motorist to drive a new car by paying a certain amount every month over a fixed term, typically two to four years. Ownership of the vehicle remains with the funding company unless the customer chooses to acquire the vehicle at the end of the contract for a previously agreed total cost. If they decide against buying out the car, the customer can simply return the vehicle.
Pence per mile (PPM)
The rate a business pays an employee to use their own privately-owned car for business purposes (i.e. driving to meet a client).
Road Fund Licence (RFL)
See ‘Vehicle Excise Duty’.
Service, Maintenance and Repair (SMR)
An over-riding term for mechanical and technical attention needed by a fleet car. Depending on the provider, an SMR package typically includes routine servicing, unexpected repairs, and replacement tyres amongst others.
Ultra Low Emission Vehicle (ULEV)
An ultra-low-emission vehicle is a car or van that emits extremely low levels of CO2 emissions. The current benchmark is a vehicle with tailpipe CO2 emissions of 75g/km or less.
With Maintenance
The element within a finance agreement which covers servicing, repairs and tyre replacement.
Whole Life Cost (WLC)
The total cost, including depreciation, servicing, fuel etc., incurred in running a vehicle for a defined period of time.
Vehicle Excise Duty (VED)
Frequently and mistakenly referred to as ‘road tax’ (much to the frustration of cyclists), VED is the rate you pay to the government to drive your vehicle on UK roads. How much you pay is decided on how much CO2 your car produces. This is included in your lease payments, so you don’t have to worry.
