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Cut through the jargon with our handy car leasing terminology guide

When it comes to car and van leasing, Nationwide Vehicle Contracts want to make it as easy as possible for you to get the car or van that you want. This includes making our website and contract information clear, transparent and as easy-to-understand as possible.

To help you cut through leasing jargon, we’ve put together a quick guide of some of the terms commonly used in leasing along with a short explanation of what they mean.

Initial Rental

The initial rental is your first payment. It is usually equivalent to 3, 6 or 9 x monthly rentals but some finance providers offer an initial rental as low as just one monthly rental. Generally, the larger your initial rental, the smaller your monthly payments.

Unlike a deposit, the initial rental is non-refundable and is part of the hire agreement. It is usually payable to finance company within 7 to 14 days of delivery, although some finance companies require payment prior to delivery.

Annual Mileage

The annual mileage is a very important part of the hire agreement as there are financial penalties in place if agreed limits are exceeded.

At the start of the lease, an agreed amount of yearly mileage is set between the lender and the customer (i.e. you) as is the mileage penalty for going over the limit.

Although it may seem a little draconian and restrictive, there is a very good reason for this.

Basically, you are being 'lent' a vehicle by the finance company, and they need to protect the residual value of that vehicle (i.e. the value of the car once you return it and depreciation is applied). The more miles on a vehicle, the lower the value - and finance companies will want to sell it when it is returned.
The monthly repayments are calculated to cover the depreciation and other factors involved in the residual value estimate, and the Annual Mileage is a part of that calculation. So exceeding it will affect that value negatively - hence agreed penalties for excess mileage. (This is explained further down this page.)

It is important that you give a realistic expectation of the number of miles you will complete each year, so think carefully about it before agreeing limits at the start of the contract.

Contract Hire

With all leasing, there are different types of contracts available to both car and van customers, each offering an option to suit financial considerations. Click here to see all car contract options available from Nationwide Vehicle Contracts, and here for van options.

Contract Hire, where the customer, or business, pays to ‘rent’ the vehicle throughout the duration of the contract, and then returns the vehicle at the end of the agreement, leaving the finance company to worry about depreciation values and disposal. For businesses, this is particularly popular with sole traders, partnerships and limited companies, and for VAT registered companies, as they can claim back 50% of the VAT for the supply of the vehicle.


When it comes to company vehicle tax benefits, it is important to understand what a Form P11D (Expenses and Benefits) is.

Every year, employers have to fill in this statutory form from the HMRC which details the benefits and expenses that they have provided during the tax year to directors and all employees earning at the rate of more than £8,500 per year, and the cash value of those benefits. Sections E, F and G relate to Mileage Allowances, Cars and Car Fuel, and Company Vans respectively.

If your vehicle is a company car or van, your employer should provide you a copy of your P11D if they used it to tell HM Revenue and Customs (HMRC) about your this ‘benefit in kind’, telling you how much each benefit is worth.

Processing Fee

Quite simply, this is a fee charged by the leasing broker. At Nationwide Vehicle Contracts, we charge a processing fee of £198.00 (incl. VAT) and represents the costs incurred for arranging the sale, ordering the vehicle, arranging finance and organising delivery. 

Excess Mileage

As stated in the Annual Mileage section, if you exceed your agreed mileage, there are financial penalties, known as an excess mileage charge.  This amount, stated on the contract as a cost per mile, is agreed at the start of the contract and is there to protect the car's final value.

For example, if the excess stated in your agreement is 5p per mile, and you exceeded your mileage allowance by 2,000 miles, you would be charged £100.

If you find that you are doing more miles than in your agreed limit due to circumstances such as a house or job move, you may be able to amend your mileage amount subject to approval by the finance provider, but this will usually incur a charge (in our case £95 excl. VAT) and not all funders allow this.

Fair Wear and Tear

At the end of your lease, your vehicle needs to be returned to the finance company in an acceptable condition. Any damage deemed outside of ‘Fair Wear and Tear’ may be liable for a lease-end penalty charges.

There are three guides available for Fair Wear and Tear depending on the type of vehicle - Cars; LCVs (light commercial vehicles including vans and minibuses) and HGVs (heavy goods vehicles – those over 3.5 tonnes GVW) - each with guidelines set out by the British Vehicle Rental and Leasing Association (BVRLA), the leasing industry’s trade body.

Inspections prior to vehicle return with regards to Fair Wear and Tear include the general condition of the car - inside and out - the tyres and wheels, paintwork, body, bumpers and trim, as well as the mechanical condition, all equipment and controls, road safety condition and all documentation and keys.

For vans and commercial vehicles, this includes damage to the loading area (outside of any minor scuffs, scratches, abrasions and small dents), damage incurred by removal of any decals, graphics or additional roof fittings.

Take a look at our Fair Wear and Tear guidelines here.


The car's transmission allows gears to change up and down between the engine and drive wheels as the car speeds up and down, and two types of transmission are available: manual and automatic.

Manual transmission involves the driver 'changing gear' to the correct gear required for the speed or road conditions, while automatic changes gear ratios automatically as the car moves and speed changes.

Fuel Economy

Fuel economy is the relationship between the amount of fuel used in comparison to the distance travelled and here in the UK is usually described in MPG (miles per gallon). In Europe it is described as l/100km (litres of fuel used per 100 kilometres), and the higher the figure, the more economical with fuel the vehicle is.

When you read of a vehicle's MPG in its' specification, this is a technical figure created in a laboratory and calculated as how far a car can travel on one gallon of fuel - although the likelihood of actually achieving this figure is highly unlikely.

Take a look at this blog article here for more information.


A pre-registered car is a new car that has already been registered with the DVLA and has a number plate allocated to it. Sometimes cars are pre-registered so that new owners can get their cars quicker, rather than have to wait for registration and allocation to take place.

Read our blog article here for more details.

Body Style

Car shapes and sizes have changed over the years, with style rising and falling in popularity as needs and fashion dictate.

Manufacturers produce models in varying styles, with customer requirements covered in a variety of shapes and styles as detailed below:

City Car

As it says on the tin, a City Car was designed to be used in the city, and able to fit into smaller places where parking is a problem, and able to zip around town quickly with good fuel economy. Example of the City Car are the Skoda Citigo, the Volkswagen up!, the Kia Picanto, and the smart Fortwo, amongst many others.


Also known as a B-segment across Europe, the Supermini is bigger than a City Car, but smaller than an average family car. It is normally available in a hatchback style to keep it compact.

Examples of a Supermini include the Fiat 500, the Skoda Fabia, the Vauxhall Corsa and the Ford Fiesta.


A hatchback is a car body configuration with a rear door that swings upward allowing access to the boot area, which can often be increased by folding down the second row of seats.

Some cars are exclusively created as hatchbacks, and many cars have hatchback versions available including the SEAT Leon, the Vauxhall Astra, the Ford Focus and the Kia Ceed.


Once the car style of the middle class, and the first real family car 'back in the day', a saloon car is also known as a sedan, and features two rows of seats and a boot. One of the most common car styles on the UK roads, it is aimed at customers who want style and room for adult passengers.

As before, car manufacturers have saloon versions of some of their models, including the SEAT Toledo, Audi A4, Mazda 6 and Hyundai i40.


Combining the comfort of a saloon car with the addition of more luggage capacity, the family estate was the car of choice for many families until the emergence and rise of MPVs (Multi-purpose vehicles) and SUVs (Sport Utility Vehicles) in the nineties.

Car manufacturers that include estate cars amongst their model offerings include the Skoda Superb Estate, the BMW 5 Series Touring Estate, the Skoda Octavia, and the Mercedes E-Class Estate, amongst others.


Shorter than a sedan or saloon, the coupe is a style that attempts to recreate their positives in a smaller space, and includes such options as the Volkswagen Scirocco, the BMW 2 Series, the Vauxhall GTC and the Mercedes-Benz CLA Coupe.


Often the choice of those who want to make an impression, and who like the open air, a convertible car features a folding or detachable roof, and includes models such as the DS DS3 Cabrio, the Fiat 500 Convertible, the MINI Convertible, and the Mazda MX-5 convertible.

People Carrier

Once seen as necessary evil for larger families, the emergence of MPVs (Multi-purpose vehicles) in the nineties saw a rise in desirability, thanks mainly to new shapes and a more pleasing style.

Available in both large and small sizes, larger cars such as the Ford B-Max, Citroen Grand 4 Picasso, and SEAT Alhambra have risen in popularity, while smaller SUVs like the ground-breaking Nissan Qashqai, Skoda Yeti and Renault Captur found themselves labelled as 'crossover' vehicles, bridging a gap between people carriers and 4 x 4s in looks as opposed to capabilities.

SUVs and Crossover

British drivers have a very soft spot for SUVs, with these vehicles having a body style based on the more rugged 4 x 4 models such as the range Rover, without the off-roading capabilities of that model.
SUVs combine a family-safe environment along with greater space and practicality, a commanding view of the road, and style that any driver will appreciate.

Fuel efficiency is continually improving too, adding to seven seats and big boots.
Cars falling into this style include the Peugeot 3008, the Skoda Kodiaq, the Jaguar F-Pace and the Volvo XC90.

Electric/ Hybrid

With many car manufacturers committed to electric and hybrid car production by the 2020s, this car style will find itself on the increase in the coming years, bringing with it cleaner air through zero emissions and better fuel economy through electric battery use rather than petrol and diesel engines.

Hybrid cars use both electric and non-electric engines, with drivers able to switch from one option to the other as they choose, and include models such as the Toyota Yaris Hybrid, the Mitsubishi Outlander PHEV, the Mercedes-Benz C-Class C300, and the BMW i8; while purely electric cars include the ground-breaking Nissan Leaf, the VW e-Golf, the Hyundai Ioniq, and the Tesla Model S.