Glossary

Acceptance Fee: An additional charge sometimes made by the lender (finance company) in addition to the interest.

Accessories: Items added to a vehicle, e.g. a tow-bar, roof rack etc.

Accident Management: A service, often outsourced, that oversees the aftermath of an accident including accident claims notification, deployment of vehicle hire and repairs.

Administration Fee: An additional charge sometimes made by the lender (finance company) in addition to the interest.

Advance: The amount loaned to a customer and covers the invoice price of a vehicle less any deposit.

Advisory Fuel Rates (AFR): The rates at which company car drivers can claim back fuel used for business mileage.

This is reviewed quarterly by HMRC. The rates shift to reflect fuel prices and are divided into petrol, diesel and LPG figures for three different bands of engine size.

Agreement: Legal document completed and signed by the lender (or owner) and the borrower (or hirer) following an application to obtain goods on credit or hire.

Amortise: Simply means “to pay”.

A fully amortising loan has no balloon or residual value. It is often known as full pay out where scheduled, periodic payments are applied to both the loan’s principal amount and the interest accrued.

Asset: Item of value owned by an individual or company.

BVRLA: The British Vehicle Rental and Leasing Association is a trade body representing the vehicle rental and leasing industry.

Balance: The difference between the totals of the credit and debit sides of an account or the remaining amount due to be paid on a credit agreement at any particular time.

Balance Financed: The total invoice price less deposit paid – see Advance.

Balloon Payment: Under certain agreements (e.g. Hire Purchase/Finance Lease), the consumer can negotiate a larger, single payment at the end of the agreement to reduce regular payments. This is known as a Balloon Payment.

Base Rate: The published rate of interest offered by a financial institution. Bank Base Rate is issued by the Bank of England.

(Note: the Finance Leasing Association (FLA) no longer publishes a Finance House Base Rate – FHBR)

Business Manager: The person in the dealership responsible for the sale of Finance and Insurance (F&I) and managing the F&I department.

Capital: An amount borrowed or due to be repaid immediately or by instalments, excluding interest.

Charges: The interest paid on a finance agreement plus any other fees.

Combined Cycle: The official EU test to measure a vehicle’s average fuel consumption under laboratory conditions, giving each car a figure to measure against its competitors.

Compliance: A financial measure to dictate if you are acting according to certain accepted standards. Regulatory compliance refers to systems or departments at corporations and public agencies to ensure that personnel are aware of and take steps to comply with relevant laws and regulations.

Conditional Sale: A type of purchase plan where title to goods passes from the Finance Company to the customer when certain conditions are met (i.e. Payments made, comprehensive insurance and good condition of the vehicle).

Congestion Charging: A surcharge for drivers using congested road networks at certain peak times. Started in London and now spreading to other towns and cities. There are often exemptions for environmentally friendly vehicles.

Consumer Credit Act 2006 (CCA): An act of parliament designed to regulate the whole credit industry but with a specific emphasis on the `consumer` in the finance marketplace. It was first introduced in 1974 and is continuously being changed and amended in line with consumer needs through the Financial Conduct Authority (FCA).

Contract: A legally binding agreement between two or more persons for the purchase of goods or services.

Contract Hire (or Operating Lease): This is a method of funding the use but not the ownership of a vehicle; the customer (Lessee) is renting the vehicle for a fixed rental from a leasing company (Lessor) for an agreed period. At the end of the contract the vehicle is handed back to the leasing company. A Contract Hire lease transfers substantially all the Risks and Rewards of ownership to the lessor and is an `Off-Balance Sheet’ method of funding. for the majority of businesses in the UK.

Contract Purchase: A Purchase agreement (similar to a Hire Purchase or Conditional Sale) that is governed by vehicle mileage and term, where a A Purchase agreement (similar to a Hire Purchase or Conditional Sale) governed by vehicle mileage and term, where a predicted minimum value (GMFV) is offset until the end of the agreement. At the end of the agreement the customer has three options:

1. Part exchange for another vehicle
2. Pay the final payment and keep the vehicle
3. Return the vehicle and walk away

Corporate Manslaughter: The law, introduced in 2008, means that a company can be found responsible for an employee’s death if it was caused by corporate negligence.

Credit Reference Agency: An organisation that collects, stores and provides information about credit customers’ past and current credit history.

DVLA: The Driver and Vehicle Licensing Agency (DVLA) is a branch of the Department for Transport (DfT) and manages UK driving licences and registration certificates.

Debtor: The customer, company or individual entering into the agreement to borrow money from a lender, or a person who has an obligation of paying a debt.

Deposit: An initial payment of a portion of the capital cost of the vehicle. This usually takes the form of cash, cheque or equity in a part exchange vehicle.

Duty of Care: Duty of care is a legal obligation for employers to look after, as far as possible, employee’s health and safety and welfare while at work. For fleet managers, duty of care is paramount.

Early Settlement: Payment of the balance owing on a credit agreement, including interest, before the final payment is due. If it is a Regulated agreement under the Consumer Credit Act, there is a legally specified rebate that the customer must be given.

Employee Car Ownership (ECO): ECO schemes are a loan facility enabling the employee to buy his own car for business use. These schemes are usually backed by service agreements offering an experience similar to owning a company car.

End of Agreement / Contract: When all the contracted payments have been made (including any fees) on an agreement. For Hire Purchase and Conditional Sale agreements, this is when title is transferred to the customer.

Equity: The ‘positive’ difference between the value of a vehicle and any money owed on that vehicle.

Executed Agreement: When a contract (document) containing all the written terms of an agreement is signed by all the people involved in it (Lender and Borrower).

Extras: See Accessories

Finance & Leasing Association (FLA): The FLA is the main representative body for the UK motor finance industry and its Lending Code sets out standards of good practice for the finance and leasing industry. Full FLA membership requires compliance to the Lending Code.

Finance Contract: A document that details all the terms and conditions of a financial arrangement as well as vehicle and customer details.

Finance Lease: This is a method of funding the use but not the ownership of a vehicle. The customer (Lessee) is renting the vehicle for a fixed rental from a leasing company (Lessor) for an agreed period. In this type of lease, the customer is responsible for the whole cost of the asset to the leasing company and will share in any profit when the asset is sold. The Risk and Reward of ownership are with the lessee.

Financial Conduct Authority (FCA): The FCA regulates the financial services industry in the UK. Its aim is to protect consumers, ensure the financial services industry remains stable and promote healthy competition between financial services providers.

Fixed Rate of Interest: A rate of interest which cannot be altered during the term of a financial transaction.

Fleet Management: The management of a company’s fleet including overseeing vehicle maintenance, risk, health and safety, telematics and drivers.

GAP Insurance: Guaranteed Asset Protection – an insurance policy that bridges the gap between the insurance company payout and finance company settlement (or original vehicle cost) in the event of total loss or theft of the vehicle.

Grey Fleet: An employee’s own vehicle used for business journeys.

Traditionally this would be a worry for some fleets. These vehicles are likely to be older, less environmentally friendly, and may not be serviced to the same level as a company or hire car.

Guarantee: A form of security used in support of a finance agreement where surety in the transaction between the finance company and customer.

Guaranteed Minimum Future Value (GMFV): Sometimes referred to as Optional Final Payment or Optional Purchase Payment.

This is set by the manufacturer or finance company and allows the customer to know the least amount a vehicle will be worth at a point in the future. It normally guarantees the balloon payment on a Contract Purchase and is calculated after taking into consideration the vehicle, the term of the contract and the total mileage at contract end.

Hire Purchase: A Hire Purchase Agreement is a fixed cost, fixed period loan of money to purchase goods.

It is a ‘Tri-Partite’ agreement where a finance company HIRES the vehicle to the customer for an agreed period at an agreed monthly sum.

The customer can gain ownership (title) by paying an additional sum called the Option to Purchase Fee or Purchase Fee.

Hirer: The person to whom goods are hired under a consumer hire agreement.

Hybrids: A hybrid vehicle uses two or more power sources, typically an internal combustion engine (ICE) coupled with an electric battery.

Instalments: Amounts payable at regular intervals under a credit agreement.

Interest: An amount of money payable to the lender, in addition to the amount borrowed. This reflects the cost of money, the term over which it is lent, and the risk involved (see Charges).

It can be either a Fixed or Variable Rate of Interest.

Invoice: A document that details vehicle and purchaser information as well as the price paid.

Lease: A contract between a lessor and a lessee for the hire (not purchase) of a specific asset where the title to the goods is retained by the finance company.

Lease Purchase: A Lease Purchase is a purchase agreement, introduced into the finance industry to describe a Hire Purchase or Conditional Sale contract with a payment structure similar to leasing.

Instead of a deposit, an ‘Advanced Payments’ may be paid and usually there is a balloon payment at the end of the agreement.

Lessee: The user of leased goods (Customer).

Lessor: The owner of leased goods (Finance House/Leasing Company).

Liability: A customer’s obligations under a credit or hire agreement.

Loan: A sum of borrowed money that is generally repaid with interest.

Negative Equity: The ‘negative’ difference between the actual value of a vehicle and money owed on that vehicle.

Non-Regulated Agreement: A credit or hire agreement that is not governed by the Consumer Credit Act.

Office of Fair Trading (OFT): The Office of Fair Trading (OFT) was the government body responsible for protecting consumer interests throughout the UK.

It’s now closed with its responsibilities passing to several different organisations including the FCA.

Operating Lease (Contract Hire): This is a method of funding the use but not the ownership of a vehicle. The customer (Lessee) is renting the vehicle for a fixed rental from a leasing company (Lessor) for an agreed period. At the end of the contract the vehicle is handed back to the leasing company.

An Operating Lease transfers substantially all the Risks and Rewards of ownership to the lessor and is an ‘Off-Balance Sheet’ method of funding.

Option to Purchase Fee: The fee that is only applicable on a Hire Purchase Agreement (usually payable with the final payment) that officially transfers title from the finance company to the customer.

Overdraft: A banking facility that allows an account to be operated, up to an agreed limit, when no credit funds are in that account.

Part Exchange: The process where a customer exchanges their vehicle with a motor dealer to form part or a deposit towards the price of their next new vehicle.

Payment Holiday: A period during the agreement when the customer does not make any payments.

Personal Contract Purchase: See Contract Purchase.

Personal Loans: A loan of money to purchase any item the customer wants – including vehicles.

The facility is widely offered by Banks, Building Societies, Direct Lenders and Finance Companies.

Pool Cars: A car owned or leased by a company that is shared between employees for business purposes only.

Primary Period of Hire: The initial period of a lease where the lessor recoups his investment and any interest charges.

Private Sector: Companies controlled independently and for-profit, free from governmental control.

Public Sector: Any organisation controlled by the government and publicly funded, including local authorities, governmental departments and the NHS.

Rebate (Early Settlement): A sum of money returned to a customer following the early payment of a finance agreement. For agreements regulated by the Consumer Credit Act, the minimum amount of rebate is legally specified.

Regulated Agreement: An agreement regulated by the Consumer Credit Act.

Remarketing: The disposal of fleet and leasing vehicles that have reached the end of their time with a business, often through auction houses.

Rental Agreement: A vehicle hired for short or long term. For fleets, rentals are sometimes used instead of pool cars or grey fleet, or to bridge a gap between contract hire vehicles.

Rentals: The term used for instalments or payments especially in leasing.

Replacement Cycles: The ideal length of time or mileage a vehicle is kept before being changed.

Repossession Rights: Detailed under the Consumer Care Act as the ‘thirds rule’. The rights of a customer and finance house when goods can be repossessed in the event of default.

Repossession: The taking back of goods by the owner which are the subject of a credit or consumer hire agreement usually because instalments or rental payments have not been kept up to date.

Residual Value: The value of goods at a point in the future – normally the end of a finance agreement. It is only a predicted figure at the start of the agreement.

Risk Management: Vital for a company’s duty of care obligations, risk management includes risk auditing, telematics, licence checking and driver training, as well as addressing mobile phone policies, grey fleet, winter planning and tyres.

Road Safety: An umbrella term referring to the safety of drivers and pedestrians by educating staff to drive safely to reduce road accidents.

SMMT: The Society of Motor Manufacturers and Traders is a member organisation that aims to act as the voice of the industry, supporting and promoting the interests of the UK automotive industry.

SMR: Service, maintenance and repair – one of the key considerations for fleets when looking at the costs of running cars.

Salary Sacrifice: A scheme that allows an employee to forego part of their gross salary in return for a non-cash benefit such as a car.

Secondary Period of Hire: The period after the end of the Primary Period on a Finance Lease where the lease is extended.

Rentals in this period are usually at a much-reduced rate – sometimes termed ‘peppercorn rentals’.

Security: Security is the guarantee to ensure a suitable financial return on investment e.g. property or equipment (vehicles) that will be pledged as collateral for a loan.

Service Contract: A specially tailored service contract can be included in finance packages to cater for service, repair and maintenance costs of a vehicle.

Settlement: The finalising of a financial transaction.

Settlement Penalty: An amount charged to customers who settle an agreement early. Any customer has a statutory right to complete payments under an agreement early, if they so desire. When this happens, the customer is entitled to a rebate of the outstanding interest if the agreement is regulated under the Consumer Credit Act. The Finance Company, however, charge a penalty to compensate for the loss of predicted income.

Specialist Automotive Finance (SAF): SAF is a kitemark developed by the FLA to raise standards and improve skills for those involved in the sale of motor finance. SAF will improve consumer confidence and change consumer awareness of showroom finance.

Spread Rentals: This refers to a payment profile for a contract. The capital and interest is being paid for ‘spread’ over the whole period (as opposed to having a ‘terminal pause’).

Supplier: The invoicing dealership.

Telematics: A combination of telecommunications and informatics. Telematics involves in-car wireless technology that provide features such as satnav, tracking, safety systems, integrated hands-free phone use and fleet management reporting.

Terminal Pause: This refers to a payment profile for a contract or agreement, i.e. 3+33.

The terminal pause or ‘payment holiday’ falls at the end of the agreement (usually a lease agreement) when the customer has finished making all the required payments. It allows them to remain in of the vehicle while saving funds to put towards advance rentals for their next lease agreement. The capital and interest is paid over a shorter period and the customer has no payments to make during the final months.

In a 3+33 agreement, the term lasts for 36 months. In month one, the customer pays the equivalent of three rental payments. This is followed by 33 monthly payments. The terminal pause occurs during the final two months.

Termination Rights: Detailed under the Consumer Credit Act as the ‘halves rule’. The legal rights of the customer to end an agreement and return the goods.

Termination: The ending of certain types of credit agreement according to the terms and conditions of the individual agreement.

Title: Legal ownership of a vehicle.

Total Amount Payable: The total amount a customer pays for goods including all charges and fees.

Tracking: A device installed in vehicles that monitors the location via GPS (Global Positioning System) and reports to a central computer network, typically at a company’s base.

Trade In: A vehicle offered as part payment in respect of the purchase of another vehicle. Also see Part Exchange.

Tri-partite Agreement: An agreement which has three parties involved in the transaction: Customer; Dealer; Finance Company.

Unregulated Agreement: Another term for an agreement not covered by the Consumer Care Act.

User Chooser: A company car driver who has a free choice of car, but often with restrictions on CO₂ limits.

V5C (Registration Certificate): A document provided by the Driver and Vehicle Licensing Agency (DVLA) that details: vehicle specification and Registered keeper details (name and address).

Value Added Tax (VAT): Is a general tax on goods and services which was introduced into the UK in 1973 and is policed by Her Majesty’s Revenue & Customs. Current Standard Rate is 20%.

Variable Rate of Interest: Rate of Interest charged that changes in response to movements in the base rate of interest used. Unlike fixed rate, it may change during the life of an agreement in line with current market conditions. This means it could go up – costing the customer more – or go down – costing the customer less.

Vehicle Identification Number (VIN): A unique number that is attached to vehicles in them to be identified.

Wear & Tear: The deterioration in vehicle condition and value, due to ordinary and normal use.

Workplace Parking Levy (WPL): An initiative, pioneered by the city of Nottingham, where local councils charge companies for car parking spaces to fund other transport options. Other cities are set to launch consultations on introducing similar WPL schemes.

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Glossary

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