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Embarking on the journey of car leasing can often feel like stepping into a whole new world, especially when confronted with a plethora of industry-specific terms. In order to confidently navigate the car leasing landscape, it is essential to understand these terms. In this guide, we aim to demystify the car leasing jargon commonly used in the UK, assisting you in making informed decisions when you lease your next vehicle.
1. Lease Agreement: This is the contract between you and the leasing company (like Silverstone Leasing) that outlines the terms of the lease, including duration, monthly payments, and mileage limits.
2. Lessee: This term refers to you, the individual or business that is leasing the vehicle from the leasing company.
3. Lessor: This is the leasing company that is leasing the vehicle to you, the lessee.
4. Lease Term: The length of your lease agreement, usually measured in months. Most leases in the UK last between 24 to 48 months.
5. Initial Payment: This is a larger payment made at the start of the lease. It's often expressed as a multiple of the monthly payment (e.g., 3, 6, or 9 times the monthly payment). The amount of the initial payment can affect the size of your subsequent monthly payments.
6. Monthly Payments: These are the regular payments you make throughout your lease term. These payments contribute towards the depreciation of the vehicle during the lease.
7. Residual Value: This is the estimated value of the car at the end of the lease term. It's set at the beginning of the lease and plays a crucial role in determining your monthly payments.
8. Contract Mileage: This is the total number of miles agreed upon in the lease contract that you are allowed to drive over the term of the lease. If you exceed this, there will be charges for excess mileage.
9. Excess Wear and Tear: At the end of the lease term, the vehicle is inspected for damage. If it is found to have wear and tear beyond what's considered normal, you may be charged an additional fee.
10. Maintenance Package: Some lease agreements include a maintenance package, which covers the costs of servicing, replacement tyres, and other maintenance. This can be a cost-effective option for keeping the car in good condition.
11. Personal Contract Hire (PCH): A common type of lease in the UK where individuals lease a car for a set period and pre-agreed mileage. At the end of the term, the car is returned to the leasing company.
12. Business Contract Hire (BCH): Similar to PCH but designed for businesses. A business leases the vehicle for a set period and pre-agreed mileage, returning the vehicle to the leasing company at the end of the lease.
"Knowledge is power. By understanding the key terms in car leasing, you are better equipped to secure the best possible deal."
The team at Silverstone Leasing is dedicated to making the car leasing process as transparent and straightforward as possible, guiding you through each step of the journey.
Depreciation is the reduction in a car's value over time. In a lease agreement, your monthly payments are primarily based on the anticipated depreciation of the car during the lease term. This is calculated as the difference between the initial value of the car and its projected residual value at the end of the lease.
If you exceed the total number of miles agreed upon in your lease contract, known as the 'Contract Mileage,' you'll be charged an excess mileage fee. This fee varies depending on your lease agreement but can add up quickly. It's crucial to estimate your mileage needs accurately before signing a lease agreement to avoid these charges.
'Excess Wear and Tear' covers any damage to the vehicle that goes beyond 'normal' use. This can include things like significant scratches or dents, interior damage, or worn tyres. Each leasing company has its own guidelines for what is considered 'normal' wear and tear. If your vehicle has excess wear and tear when you return it at the end of the lease, you may be charged a fee to cover the cost of repairs.
Personal Contract Hire (PCH) and Business Contract Hire (BCH) are both types of lease agreements, but they cater to different needs. PCH is designed for individuals, while BCH is tailored to businesses. The primary difference is how VAT is handled. Businesses (subject to eligibility) can reclaim a portion of the VAT on their BCH lease payments and on any maintenance packages. Also, the vehicle under BCH doesn't count as an asset for the company, making it a good choice for businesses aiming to improve their balance sheets.