Jargon Explained

Here is our Jargon buster !

We hope that this page explains some of the jargon which is associated with our industry.

APR stands for annual percentage rate. It is a calculation that allows consumers to benchmark the cost of borrowing. In general the lower the APR the better, although there are factors like whether the APR is variable or not to consider and whether you are comparing like for like. This means if you are comparing a re-mortgage APR with a Hire Purchase APR you do not get a true comparison as they are different types of loans.

APR takes into account the amount of interest you pay and any other fees charged by the provider such as arrangement fees for setting up the loan. It also takes into consideration when and how often interest and charges must be paid.

This is the final end payment, usually on a lease purchase or Personal Contract Purchase. It is used to get lower monthly payments as you are not paying off all the value of the car or van. The value is set based on the mileage per annum you choose.

This is our business philosophy. Our quotations are always based on the “best price first time” policy with outstanding service. We believe in simple negotiations and not entering the biding zone!

Benefit in kind is the term used by the Inland Revenue to assess the tax liability you have on a company benefit such as car or fuel allowance. If a company car is provided by an employer the employee is required to pay tax on the value of the car. From April 2002 this is calculated using the P11D value of the vehicle, the CO2 rating of the vehicle and the tax band of the employee (20% or 40%).

This is the emission rating of a vehicle expressed as grammes per km. In general the lower the emissions the more environmentally friendly the car is and therefore the lower the tax liability to the driver.

Depreciation is the amount of value your vehicle loses in a given period and is affected by mileage/age/condition.

If a vehicle is funded using Contract Hire or a Finance Lease and is used for personal use, the company can only claim back half the VAT on the rental payment. The portion of VAT you can’t claim back is the disallowable VAT. All the VAT can be claimed back on the maintenance of the vehicle.

Early termination is where a finance agreement / contract is cancelled before it’s contracted term has ended.  Contract Hire agreements are for a fixed term and incur charges for cancellation. Hire purchase, personal contract purchase and lease purchase are much more flexible and easier to settle.

Effective Rental is the actual cost of a rental which takes into consideration the disallowable VAT element of a Contract Hire or Finance Lease agreement. i.e. a rental of £100 plus VAT would equate to £120 including vat. The Effective rental would therefore be £110 ( the actual cost to the company after the 50% vat has been claimed).

Certain finance agreements have an excess mileage charge. This is expressed as PPM (Pence Per Mile) and is charged when your vehicle exceeds the agreed mileage. With certain funders this can be pooled when multiple agreements are taken out. For example, 2000 miles over at the end of the agreement at 10p per mile = £200.00 excess mileage charge for you to pay.

See balloon payment..

GAP Insurance is a policy that can be taken out with a new car. If your vehicle is written off for any reason, the value that your insurance company places on it will be considerably less than its actual retail value – and may be considerably less than the actual amount you still owe on your loan. This policy will cover the GAP between the two amounts, so you can start again from an even keel. If you owe £10000 on your finance agreement and the car is only worth £5000 you would normally pay the difference to the finance company before you can get another car. With GAP Insurance the £5000 difference would be paid for you.

This is an agreed value that is found at the end certain finance agreements, typically personal contract purchase agreements. It means that you do not have to worry about the residual value in the future. The figure is agreed taking into consideration the length of agreement and the quoted total mileage.

Parallel imports are vehicles that have been imported to the UK from Europe to the UK Specification or similar, Grey imports are none UK models, often imported from Japan etc. The warranty and final specifications of these cars will be different to a UK model and the residual values will be less. (Please note, we do not sell this type of vehicle)

Initial Payment /Rental is the first payment you make on an agreement before the car is delivered, similar to a deposit.

On The Road price, this is the final invoice value of the vehicle, including road tax and delivery to the dealer. Contract hire agreements do not have an on the road price as you are only in effect renting the car from the owner (the finance company)

If a vehicle is funded on Contract hire for example, it does not show as an asset on the company balance sheet. It shows as a cost in the profit and loss account, therefore offering a tax saving in most circumstances. Please seek professional advice on this subject from an accountant.

As a company car driver you are responsible for paying income tax on your benefit. The is the amount that that the Inland Revenue use to work out your taxable benefit. The value is calculated by adding the list price and any extras (both dealer fitted and factory fitted) together but excludes the Road Fund License and First Registration Fee.

Pence per mile. If you have an agreed mileage amount on your contract, any excess will be charged by the mile and will normally attract VAT.

Pooled Mileage Agreements are one of the methods used to reduce the overall costs of a large fleet. As a business running a large fleet you may wish to group or Pool the mileage of your cars. This may help to  keep the over all running costs down, for example one driver may do 10,000 miles under the agreed amount, another may do 10,000 miles over. If pre-arranged with the finance company you could stop any further charges by netting one of against the other.

This refers to a payment profile for your contract or agreement such as 3+33 or 3+21. Basically, the two amounts add up to the period of the agreement, and because you pay two extra payments up front, you have a two month payment free period at the end. This allows you to allocate funds for your next 3 advance payments when you change your car.

This is how most contract hire agreements are marketed; it is a way of keeping the monthly payment down to a minimum. For example a three year Reduced Spread would be shown as a 3+35, making a total of 38 payments.

This is the amount a vehicle is worth at a pre-determined time, for example at the end of a contract or finance agreement. This is one of the factors used to determine the rentals on a contract hire agreement.

This stands for Road Fund License or road tax.

A Vat qualifying vehicle can be defined as a pre registered vehicle which attracts Vat. This type of vehicle can be purchased by a contract hire / leasing company and leased / contracted to a business. Other than new vehicles, which are always invoiced plus Vat, a Vat qualifying vehicle , commonly six months old, is the only method of purchasing and renting by a contract hire / leasing company.

For answers to any jargon not mentioned above please contact us

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