Car Leasing Glossary: Key Terms Explained
If you’re new to car leasing, some of the terminology can feel confusing.
This glossary explains the most common leasing terms in plain English, so you know exactly what you’re agreeing to before you take out a contract. LeaseCar have been helping drivers lease vehicles for over 25 years, and we know that clear information makes all the difference. You can also see what our customers think on Trustpilot.
Use this page as a quick reference before, during or after your lease.
Car leasing glossary (A–Z)
Advance rental (initial rental)
The upfront payment you make at the start of your lease.
Usually equivalent to 3–12 monthly payments (up to 50% of the total rental value)
Not a deposit—you won’t get it back
Annual mileage
The number of miles you agree to drive each year.
Affects your monthly cost
Exceeding it may result in excess mileage charges
Balloon payment
A large final payment required in some finance agreements (like PCP).
Not applicable to standard leasing (PCH/BCH)
Leasing has no final purchase payment
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, it refers to the total rental payable after the VAT has been reclaimed
BVRLA Fair Wear and Tear
Industry guidelines that define acceptable vehicle condition at the end of a lease.
Covers minor wear vs chargeable damage
Followed by reputable leasing companies
This is the standard used by LeaseCar – see our wear and tear guide for details
CCA Consumer Credit Act 1974
The legal protection for individuals, unincorporated companies and partnerships.
Regulated Credit Agreements must have a cooling off period where they can be cancelled (usually 14 days)
CO₂ emissions
The amount of carbon dioxide a vehicle produces.
Affects vehicle tax and company car tax (BIK)
Lower emissions often mean lower tax costs
See our guide on carbon dioxide for more details
Commercial Use
This is when a business leases a vehicle. This normally means that a number of different people will be using the vehicle, and its important that it shouldn't be used for personal use.
Contract Hire (PCH / BCH)
The most common type of leasing.
You rent the car for a fixed period
Make monthly payments
Return the car at the end
No option to buy
Contract length (lease term)
The length of your agreement.
Typically 24, 36 or 48 months
Shorter terms are generally more expensive for monthly repayments
Contract Purchase
An ‘on balance sheet method’ for commercial leases where the customer can buy the vehicle at the end of the contract (via a ‘balloon payment’) or return the vehicle.
Credit check
A check carried out by the finance provider to assess your eligibility.
Looks at your credit history and affordability
Might result in higher charges if you have poor credit, or a refusal
Delivery Note
A document signed when the customer takes delivery of a vehicle. The date normally signals the start of the agreement and payments then begin one month later.
Depreciation
The reduction in a car’s value over time.
This is what your lease payments are largely based on
One of the biggest costs of owning a car
Early Termination
Ending your lease before the agreed term.
Usually involves a fee to the leasing company
Terms vary by provider; typically at least 50% of the outstanding payments will need to have been completed
Contact LeaseCar if you are having problems affording your lease.
Excess mileage charge
A cost applied if you exceed your agreed mileage.
Charged per mile
Rate is set at the start of your contract
Excess fees will vary by leasing company
Fair wear and tear
Minor, expected signs of use.
Small scratches, light wear
Defined by BVRLA standards – read our ‘fair wear and tear’ guide
Finance Lease
A business leasing option where:
The business takes on more risk
There may be an option to sell the vehicle at the end
Gap Insurance
Optional cover that pays the difference between:
Your car’s value
And the amount owed
More common with purchased vehicles than leases.
Hire purchase
A type of asset financing which allows either a business or individual to use and control a vehicle during an agreed set of time.
Monthly payments are made to cover depreciation
At the end of the contract, the lessee can either return the vehicle or own the car if they cover the balloon payment
Initial rental
See Advance rental
In-stock vs factory order
In-stock: available sooner
Factory order: built to your spec (longer wait)
Lead time
The estimated delivery time for your vehicle
Lease Purchase
A finance option where:
You pay monthly
Then make a final payment to own the vehicle
Not standard leasing. See Contract Purchase
Lessee
The person or business leasing the vehicle.
Lessor
The finance company that owns the vehicle.
Maintenance Package
An optional add-on that covers:
Servicing
Routine maintenance
Replacement parts (depending on the package)
Helps avoid unexpected costs.
Manufacturer's list price
This is a basic price before options, VAT or any applicable discounts.
Manufacturer’s warranty
Coverage provided by the car manufacturer.
Usually lasts 3–5 years
Covers mechanical faults
Most lease cars are covered for the full term.
Monthly rental
Your fixed monthly payment.
Based on depreciation, contract length and mileage
MOT
The annual roadworthiness test.
Not required for new cars until they are 3 years old
On-the-road Price
The full sum that the Leasing company will pay the manufacturer for the vehicle.
Manufacturer list price, plus:
Optional extras, delivery, VAT, registration and road fund licence charges
Part Exchange
Using your current car as part payment—more relevant to buying, than leasing arrangements.
Personal Contract Hire (PCH)
Leasing for private individuals.
Fixed payments
No ownership
Return the car at the end
Personal Contract Purchase (PCP)
A finance agreement with an option to buy.
Regular monthly payments
Includes a balloon payment at the end to own the vehicle
Personal use
Requires that a single driver uses the vehicle and it is not used for business purposes (e.g. courier deliveries).
Processing Fee (admin fee)
A one-off fee charged by some brokers or funders.
Purchase price
The price at which the funder will sell a vehicle at the end of the contract. Note that the contract holder cannot buy the vehicle themselves or through a third party.
Residual value
The predicted value of the car at the end of the lease.
Used to calculate your monthly payments
Road tax (VED)
Usually included in lease payments
Servicing schedule
The manufacturer’s recommended maintenance intervals.
Important for keeping the warranty valid
Underwriting
The process lenders use to assess your application.
Includes credit checks and affordability
Upfront cost
The amount you pay before your lease begins.
Usually the initial rental
Wear and tear
See Fair wear and tear
Need help understanding your lease?
If you’re unsure about any of these terms, it’s always worth asking. At LeaseCar, we:
Explain everything clearly before you commit
Help you avoid surprises
Focus on finding deals that actually suit your situation
You can call us on 0344 745 1818, we'll be delighted to hear from you. Or browse our latest deals to see if there is a car lease right for you.