Contract Hire Agreements Explained

If you are new to leasing, this jargon buster will help explain the most popular terms and help answer those tricky car lease questions you may have.

There’s no doubt that leasing a car is becoming a prevalent method of getting behind the wheel of a new vehicle. However, it appears that some drivers do not understand what leasing a brand new car actually means.

Put simply, when you lease a car, it is an alternative to buying with cash or using finance, such as a bank loan. Essentially, leasing a car is a long-term rental and can be done cheaply rather than spending your hard-earned money buying a new vehicle outright.

So, here’s the First Vehicle Leasing guide to understanding car leasing jargon.

Brokering fee

When you start a new car leasing agreement, there will be an administration fee to pay. We charge for our brokering services at First Vehicle Leasing £298.80 Inc Vat. You only pay when you are approved for the credit, not before.


First Vehicle Leasing is a credit broker, not a lender. The broker when leasing a car is simply the ‘middleman’ between the leasing company, vehicle manufacturer and buyers. The broker is independent, so we can shop the whole market place to find the best contract hire deals possible for you, our customers. First Vehicle Leasing has been a credit broker on the internet for almost 25 years.

Business contract hire

Business contract hire (or business leasing) is a leasing option for firms and companies because they can often reclaim a portion VAT element of their monthly rental. It's also a popular method for companies choosing to go down the salary sacrific contract hire route. Espeically when Electric Vehicles (EVs) are concerned. The choice is available for self-employed people too. Business car leasing can be complicated, you should always talk with your account before proceeding. Have a chat with one of our business contract hire specialists today. 


The organisation representing the car leasing industry in the UK is known as the British Vehicle Rental and Leasing Association (BVRLA). They license the sector’s credit brokers, and it is the organisation responsible for creating and upholding the code of conduct for members. First Vehicle Leasing is a proud member of the BVRLA.

Contract length (or term)

The length of a leasing agreement will be called the ‘contract length’. Usually, this will be either 24, 36 or 48 months. The contract is generally expressed as something like ‘3+35’. The ‘3’ is the initial rental for three months of the monthly instalment, while the 35 is the number of monthly instalments.

See also, Initial rental. and zero deposit leasing

Credit score

To determine how creditworthy a customer is, all car leasing lenders will carry out a credit check to determine the customer’s credit score. This will see them taking a look at your financial circumstances, commitments and payment history. It will be the lender that decides to approve or decline the credit application. The credit check will leave a mark on your file.


We try not to use the term ‘deposit’ as it implies that you get something back. Or that you are buying something. With car leasing, it’s an extended hire of a new car, but with a contract. You won’t own the vehicle at the end, and any initial rental is non-refundable.


All cars will depreciate in value, which means their value will fall with each mile it travels and every day, the car will age. Usually, the steepest drop in depreciation is at the beginning of a car’s life. A lease deal will calculate this depreciation to work out what the fixed monthly repayments are. As you don’t own the vehicle, you pass the depreciation risk to the lender with car leasing.

Excess mileage

All car leasing agreements will have a mileage limit, and if you go over this, you will be charged an ‘excess mileage’ charge. Often leasing agreements can be amended mid-contract if your circumstances change. Your leasing agreement will explain your excess mileage charge. Also, it’s worth bearing in mind that your mileage allowance will directly affect your rental price.

Fair wear and tear

You will need to simply return your leased car in good condition, but there will be some consideration for minor scuffs and scratches. These allowances are governed by the BVRLA fair wear and tear standard. However, for more severe damage, the leasing company will charge for repairs.

Financial Conduct Authority (FCA)

First Vehicle Leasing is authorised and regulated by the FCA. In the UK, the Financial Conduct Authority protects consumers when taking on credit. You should deal with a car leasing broker authorised and regulated by the FCA for your own protection and peace of mind.

In stock

This term describes those models for car lease deals currently available from stock for customers with the leasing company. You can place an order and expect the car to be delivered in just a few weeks.

Initial rental

You’ll see the term ‘initial rental’ frequently, and this is used to describe your first rental payment. This can vary depending on how much you want to pay. If you pay more money upfront, then your monthly payment will be reduced, and vice versa. Often the figure will be displayed as a multiple of your monthly cost. Like, 1x, 3x, 6x, 9x or 12x rentals in advance. 1x giving a higher monthly rental, and 12x doing the opposite. The initial rental is not usually taken until 10 working days after delivery of your new car, but it can vary form lender to lender.

Lead times

After ordering a car to lease, it will take some time to be delivered - this is known as the ‘lead time’. Cars from stock can be delivered in around two to three weeks, depending on credit approval and logistics. A vehicle ordered from scratch a ‘factory order’ could easily take three months or more. 


You can choose a ‘customer maintained’, or a ‘lender maintained’ contract with a lease agreement. A ‘customer maintained’ lease is when you are responsible for the service, maintenance, tyres and general upkeep of the vehicle whilst in your possession. This includes MOT tests and any repairs should the car fall out of warranty. With a ‘lender maintained’ contract, the rentals will include an extra amount to pay for things like servicing, maintenance (over an above warranty items, so wipers, bulbs, brakes and so on) and premium tyres. Some agreements will also include breakdown recovery and MOT tests. Lender maintained agreements almost act like a warranty, too, for when the cars manufacturer warranty expires (often, but not always, in year 4).

Personal Contract Hire (PCH)

If you take out a personal car lease agreement, it will be referred to as a personal contract hire (PCH). You’ll pay monthly rentals, and the contract will terminate at the end. You will arrange with the lender to come and collect your vehicle when the agreement has finished. 

Residual value

The term ‘residual value’ in car leasing refers to how much your vehicle will be worth when the agreement ends. This will take into account the vehicle’s depreciation and other issues and directly impact how much your lease will cost. With a lease agreement, however, the residual value is of no genuine concern to you.

Road tax

Road tax (or Road Fund License) is levied on all relevant vehicles using public roads. The Government determines how much you’ll pay, and this will include how much CO2 emissions your car has. Usually, the higher the CO2 figure, and the higher your road tax bill will be. Hence why all-electric vehicles and plug-in hybrids can be cheaper to road tax. Leasing companies include road tax in the contract hire prices they quote, which is usually for the agreement term. Meaning that there is one less thing to think about.


Value Added Tax, or VAT, is the amount of tax levied on transactions, currently 20%. All personal contract hire agreements must include Vat. Business agreements are quoted without Vat as their situations with Vat can vary.

Zero Deposit Car Leasing

You might often see 'zero deposit car leasing' or '0 deposit car leasing' being advertised on the internet. This is what we would call 'Equal Spread Rentals'. Meaning that all of your monthly lease rentals are added together, and divied by your chosen term. Usually 24, 36 or 48 months. This means that instead of paying a large initial rental in advance, you can just pay one, making a car lease a good option, if you don't have a large deposit (initial rental).

For more help with car leasing jargon and to get advice about leasing the latest models in the UK for less, then you need to speak with the friendly First Vehicle Leasing team today on 0333 00333 25.