Leasing glossary

Your Plain English Guide To Leasing

At FVL we like to speak plain English. To help you find a contract which is right for you, we've prepared this glossary to frequently used car leasing and contract hire terms to help cut-through all the jargon.


Advance Rental

An initial payment of up to 50% of the total rental value. There is no upper payment limit on Personal Contract Purchases.


Balloon Payment

A feature of Contract Purchases and Personal Contract Purchases, this is a final payment that is agreed at the start of the contract but not made until the end.

BIK (Benefit in Kind)

For tax purposes, we supply a 'List Price' that includes:

  • VAT
  • The list price of options and extras including VAT,
  • and the manufacturer's delivery charge on the day before the vehicle is delivered.

HM Revenue and Customs uses the List Price to assess the amount of tax that is payable on a company car.

Our 'List Prices' are guides and, if customers have any queries, they should speak to their accountants or financial advisors.

Blocked VAT

Limited companies and non-government customers can claim back 50% of the VAT on their finance rental and 100% of the VAT paid on their service agreement.

Blocked VAT only applies to cars where there is an element of private usage and it refers to the total rental payable after VAT has been reclaimed.

BVRLA (British Vehicle Rental & Leasing Association)

The trade organisation for companies such as FVL.

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CAP Current Auction Price

The leasing and rental industry's independent current market evaluation system that also forecasts Residual Values.

Capital Cost

The On-the-Road Price excluding the Road Fund Licence costs.

CCA Consumer Credit Act 1974

The legal protection for individuals, unincorporated companies and partnerships. Regulated Credit Agreements must have a cooling off period during which they can be cancelled.

CO2 Carbon Dioxide

The amount of CO2 that a car emits affects the amount of company car tax and Road Fund Licence that it attracts.

Contract Hire

A funding method where a company or individual hires a vehicle for a specified period of time and makes regular rental payments. The funder retains ownership and its associated risks.


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Delivery Note

A document signed when the customer takes delivery of a vehicle. Its date normally signals the start of the agreement and monthly payments begin one calendar month later.

Delivery Costs, Supply Costs

The charge a dealer makes for delivering a vehicle to his customer. It forms part of the On-the-Road price.


The value that an asset loses as it is used. In effect, the difference between the purchase price of a vehicle and its worth at the end of the contract. Vehicles depreciate steeply in their first 18 months.


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Early Termination

When a customer ends a contract before scheduled, the finance company will levy a charge according to specific circumstances. Commonly this equates to the return of the vehicle and payment of 50% of outstanding rentals

Excess Mileage

Mileage covered that is additional to that agreed in the contract. It always attracts a charge to cover the additional servicing and depreciation costs it generates.


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Fair Wear & Tear Standards

Each lender has its own fair, wear and tear standard for assessing vehicle condition upon their return. Most follow the BVRLA’s guidelines and most have a guide that can be requested before return.

Finance Rental

The finance element of the rental payments. It includes the Road Fund Licence in Contract Hire, but notin an operating lease.

First Registration Fee

A government levy (currently £55) to cover the costs of registering new vehicles.

Formal Extension Secondary Period

A period of 3 or more months for which a customer may chose to extend their contract. The funder may consider granting short informal extensions to contracts.


The finance company used to provide the funds for the lease/purchase of the vehicle.


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The finance company with whom you have the agreement and the owner of the vehicle.


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The funder offers maintenance agreements that include routine servicing, repairs, replacement parts, tyres, batteries and exhausts. The funder is not obliged to make repairs that arise from accidental, deliberate or negligent damage to the vehicle.

Manufacturer's Delivery Charge.

The charge levied by the manufacturer for delivery of the new vehicle to the supplying dealership. This is used to calculate the BIK price and may differ from the supply cost.

Manufacturer's List Price

This is a basic price, before options, VAT or discounts.

Master Hire Agreement

The agreement that the customer and the funder both sign at the start of their relationship. Generally only used when multiple vehicles are being ordered over a period of time.

MGFV Minimum Guaranteed Future Value

The percentage of the car's initial value that will still be recognised at the end of the contract. This value is guaranteed by the funder provided the vehicle is within the age and mileage parameters set at the start of the contract.


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On-the-Road Price

The full sum that FVL pays the manufacturer for the vehicle. Here's the calculation:

  • The Manufacturer's List Price
  • - The price of Options
  • + The price of Options
  • + The Delivery Charge
  • + VAT
  • + The Registration Fee
  • + The Road Fund Licence
  • = On-the-Road-Price.


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Pooled Mileage

Pooled Mileage terms are negotiated in the master agreement between the funder and customers who contract several vehicles.

Purchase Price

Some lenders may offer a purchase price for the vehicle.


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If a vehicle is not used for any personal purposes, it will qualify for 100% VAT Relief.


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Regulated Agreement

Where the total of all the rentals/payments including VAT is less than £25,000.00.

Relief Vehicle

The funder will provide those customers, who select this option, with a car to use while their own is off the road.

RV Residual Value

An estimate of what the vehicle will be worth at the end of the contract.


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Sales Agency Agreement

This is an option exercised at the start of Contract Purchase agreements. It allows the customer to exercise their options, namely to return or keep the vehicle at the end of the contract. Without it, they would have to make the balloon payment and keep the car.

Service Rental

The element of rental that covers the vehicle's maintenance, relief vehicle (if selected) and breakdown services. With a Contract Purchase, the service rental also includes the Road Fund Licence.

Sale & Leaseback

The funder can buy a customer's fleet and then lease it back to them. It allows customers to release equity tied up in vehicles and enjoy the benefits of Contract Hire.

Spread Rental

A payment profile that spreads rentals over the life of the contract and means that there is no rental-free period at the end of the contract.


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Terminal Pause

The rental free period at the end of a contract that is facilitated by the advanced payments at the start of the contract.


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Written Down Allowance

A Capital Allowance for people using the vehicle to carry out a trade. The lease will include a clause making it clear that the lessor or owner will claim this capital allowance.