Leasing a car: the benefits and pitfalls - Jargon buster

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A typical method of describing a lease deal. The first figure is the number of initial payments that must be made up front as a deposit, the second the number of months over which the lease runs.

Application fee
An initial fee typically levied by finance companies when you sign a finance agreement.

Balloon Payment
The final payment of a finance agreement in order to take ownership of a car.

Depreciation
The reduction in the car's value caused by age, mileage and condition. This is always greatest in the car's first year on the road, but varies between makes and models. Whatcar.com's depreciation calculator can be found here.

GAP insurance
Insurance that covers losses arising if a lease car is written-off, but the payout is insufficient to clear the outstanding finance.

MGFV
Minimum Guaranteed Future Value – the car's likely value at the end of the lease agreement. You borrow the difference between the car's current price and its MGFV.

MRP
Manufacturers Recommended Price Residual Value. The value of the vehicle at the end of the agreement, which is usually estimated on the initial lease document.

P11D value
Used by the Inland Revenue for taxation purposes, it is the price of the new vehicle plus the cost of extras.

PPM
Pence per mile – usually listed on any lease agreement where you agree to a set about of mileage. A PPM rate will be set for any additional mileage.

Residual value
This is the predicted value of your car when it reaches the end of its lease deal. Lease payments are typically based on the difference between the car's purchase cost and residual value.

VED
Vehicle Exise Duty – road tax.

With Maintenance
Phrase will be used within the finance agreement and detail what servicing, repairs and tyre replacement deal you will get.

WLC
Whole Life Cost - the cost of running a vehicle for a defined period of time, taking into account depreciation, servicing and other expenses.

GAP insurance offer in association with What Car?


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