Balloon Rental
A substantially greater rental than the other individual rentals, which is made at a specified time, usually at the end of the primary period.

Capital Allowance
Tax allowances which the owner of equipment claims against his taxable income. In leasing it is the lessor, rather than the lessee, who claims capital allowances. They represent the recognition of depreciation in the tax system.

Contract Hire
A contract of hire (usually for motor cars) where the asset is hired for a (usually fixed) term of generally two or three years rather than for the life of the asset. Rentals reflect depreciation of the capital cost of the vehicle less an assumed residual value. Maintenance, servicing etc are usually included in the rentals.

Depreciation
Annual write-off for accounting purposes to represent the deterioration of an asset over its useful life. Under a finance lease, the lessee must account for the asset as a capital item, following the accounting rules for fixed assets. The lessor records in his balance sheet a receivable of the amount of the minimum lease payments, excluding earnings allocated to future periods. Under an opening lease, only the lessor is concerned with the depreciation. Capital allowances represent depreciation for tax purposes, but are subject to different treatment from accounting depreciation.

Finance Lease
A lease where the lessor expects to recover the capital cost of the asset, money costs and his profit during the period of the lease.

Hire Purchase
Hire purchase (HP) is an idiom and legal term for a form of purchase in which payment for goods is made in instalments over a period of time and in which title to the goods supplied - in other words, ownership - does not pass to the purchaser until all such payments have been made. Retention of title to goods differentiates HP from other common consumer credit systems. The consumer hires the goods, pays regular periodic rent payments, and - depending upon the nature of the agreement - must or may purchase title to the goods with a final payment (or may elect at the end of the hire period to return the goods to the vendor without seeking a transfer of title).

Lease Purchase
Hire purchase as applied to a commercial lessee. Lease purchase is not a form of leasing, since title to the asset passes to the hirer (i.e. not the user).

Operating Lease
A lease where the lessor does not recover the full cost of the asset out of the rentals paid during the primary period, but it looks to the residual value of the asset for part of the recovery.

Primary Period
The initial (primary) period of a lease, commonly less than the normal working life of the asset, during which the lessor expects to recover the cost of depreciation of the asset, his money cost and his profit.

Residual Value
The amount initially estimated by the lessor as the sale proceeds which he can expect and which he does not, therefore need to recover by way of rentals.