Contract Hire Jargon Buster

Compare Contract Hire has detailed some of the terms you may see or hear when evaluating contract hire or other finance methods.

This simple guide should help you understand what the terms mean and help you in your buying decision.

Annual Mileage or Contractual Annual Mileage.
  • This is the annual mileage you are expected to do for the contract period and is fixed when you start your contract.
  • Go over this figure and you will pay an excess mileage charge.

APR Annual percentage rate.
  • A standard method to calculate the full cost of the interest and other charges on the finance.
  • You can use the APR to compare the cost of different finance options, although contract hire lease agreements will not show an APR.

Base rental.
  • Normally the contract hire rental that is charged before VAT is added.
  • Remember, you will need to add VAT at the current rate to this figure, to see the total rental.

Contract Amend.
  • When you start your contract you fix the annual mileage, type of contract and duration.
  • If you want to change this you may be able to do so, but do check with your relevant finance partner.

Contract Duration.
  • The contract time period you are agreeing to sign up for.

De-Hire date.
  • This is the date your contract officially ends with the contract hire company.

Early termination charges.
  • If you decide to return your vehicle back to the contract hire company, before the contract end date, there will normally be a charge to do this.
  • This is normally based on a percentage of the outstanding rentals yet to pay and the percentage will vary depending on the contract hire company policy.

Effective rental.
  • When a Business contract hires a vehicle, depending on your VAT status, you may be able to recover some of the VAT.
  • The effective rental is what you will pay after all the VAT recovery items have been calculated.

Excess mileage.
  • This is the levy charged if you exceed the contractual annual mileage over the contract period.
  • Normally this is charged at a fixed pence per mile rate.

Fair wear and tear (or de-hire damage).
  • When you return your car or van, the contract hire company will expect the vehicle to be in a reasonable condition i.e. a clean example of a used vehicle with no damage.
  • If the vehicle has bodywork damage, dents etc, you will be charged an amount to rectify the vehicle.

Informal Extended Hire.
  • At the end of your contract you may decide to keep your vehicle on an ad hoc basis until your new vehicle arrives. This is called informal extended hire.
  • However please note that you are out of contract and if the leasing company wants their vehicle back they can just ask for it to be returned immediately.

Insurance shortfall or GAP.
  • If your vehicle is written off due to theft, or an accident, the contract hire company will expect to receive payment to the value of their accounting book value (or asset value).
  • If the insurance company pays less than this figure then you are liable for the difference.

Payment profile.
  • The number of payments you will be making including the initial rental.
  • You may see, for example, on a 36 month contract a 3 + 35 payment profile.
  • This means you will be making 38 payments.

PCP (Personal Contract Purchase).

  • A fixed monthly payment scheme with the option to retain ownership at the end of the contract period by making a final payment (balloon) - or to just walk away.

Purchase discount.
  • The discount off the basic price of a vehicle or accessory, normally offered to a contract hire company (before other items for example like VAT are added).

Residual value.
  • The forecasted value the contract hire company thinks it will sell your vehicle for at the end of your contract.

If you are interested in finding out more information then ask one of the contract hire partners.

If there are any other terms you would like added to this section, please use the Contact us button at the bottom of the page.

Compare Contract hire Ltd cannot be held responsible in any way concerning the accuracy of the above information.


A guide to technical terms used in car or van contract hire and leasing from Compare Contract Hire.

CompareContractHire.com has provided a simple guide to help a business or a personal/private individual understand what all the technical car or van contract hire UK leasing and other finance terms mean.

So when you finance your car or van on contract hire and leasing you will be able to fully understand what all the jargon means.

The top ten things we think you should remember about business and personal contract hire.

1) Contract Hire is a form or rental (or sometimes called leasing) - so you are not buying the car or van.

2) Vehicle leasing companies can recover the VAT when they buy the vehicle and this benefit is passed on to you in a lower contract hire rental.

3) It can provide you with fixed cost motoring as all you do is pay one monthly contract hire rental.

4) The contract is fixed to an annual mileage however. Go over the contractual hire annual mileage allowed and you will pay a charge.

5) The risk of selling the vehicle at the end of the contract is down to the Contract Hire leasing companies.

6) Car or Van Contract Hire can cover most things like all routine servicing, mechanical repair, tyres, batteries and exhausts - thereby taking the risk out of motoring.

7) The road fund licence is normally included for the contract hire arrangement.

8) Great if you don't want to tie up loads of cash in a vehicle as when you buy a car or van they lose value over time.

9) Drive a better car or van using the £ shopper (Audi, BMW,Mercedes, VW) than you think because of the way each leasing company sets the resale or residual value of the vehicle.

10) Contract Hire can sometimes be referred to as car or van leasing and is becoming more popular for small businesses and private buyers interested in car leasing.