Car Lease - Netbook Value and Insurance Shortfall

Silver_Nitrate

I have an on going ticket with LexAutolease regarding my stolen leased vehicle, I’m hoping someone with better understanding of leasing in this situation can help me as I’ve been confused by the leasing team responses.

My leased vehicle was stolen in July 2025 and have received an invoice to settle the shortfall between the Net Book Value of the car (depreciation based upon payments) and the Insurance companies payout. 

I’ve been informed that the shortfall comes from the following: 

Capital Cost for the vehicle at £33,990.17. (LexAutolease)

Net Book Value at the time the car was stolen at £24,555.77 

Insurance Payout at £21,053.00

Shortfall of  = £ 3,502.77

LA explained via email that I had paid 24 months at £393.10, totalling £9,434.40 which was the "depreciation at the time of the incident". (£33,990.17 -  £9,434.40 = £24,555.77 ) From this, LA explained this was the NBV and I have to pay the shortfall.

I went back to LA and asked them why they had omitted my Initial Rental of £4690 when totalling the amount I have paid towards the lease, as if this is added to my 24 month payments it equates to £14124.4 not £9434.40. (£33,990.17 -  £14124.4 = £19865.77)

My reasoning here is that the NBV of the vehicle should be £19865.77 not £24,555.77 and would mean that there wouldn’t bet be a shortfall and the NBV is lower than the Insurance payout of £21,053.00.

While on the phone to LA, the agent laughed and said that the Initial Rental  was only used to bring down the monthly costs and wasn’t included as this was their profit. I argued that this couldn’t be correct and that the total of 24 months would be the same whether I chose to use an Initial Rental to reduce monthly payments or chose no upfront payment at all. We went round in circles for 30 mins with him explaining that I just didn’t understand, as they don’t discuss how they come to a depreciation figure, although their original email clearly explains how they did.

I’m confused because if LexAutolease had replied with it doesn’t matter how much you pay; we know the NBV at the time of the claim and the shortfall comes from the insurance companies payout. I would have understood that and although I had paid more over this term I guess that this is business. 

However because their email worked it out from my monthly payments originally to get to the Net Book Value figure and left out the Initial Rental, when I question why they haven’t included it to work out this figure, they laugh and tell me I need to pay the shortfall or they’ll send it to collections which will incur more costs?

I should add that I have made a complaint and this is the final outcome from LexAutolease, the representative who laughed and couldn’t adequately explain why the Initial Rental was omitted was my final point of contact before they closed the ticket and requested payment.

Can anyone explain to me what I'm not understanding?

TIA

born_again

You are paying to "Rent" the car in effect, NOT paying towards the actual cost of the car.

So cost they paid for car compared to what insurance paid out is what you owe. That is why you should have taken out GAP ins on something that is never going to be yours.

matt_drummer

If you accept their method of valuing their car, then just taking off all you paid from the initial cost is not the full picture, there is also interest to take into account so not all your payments reduce the cost of the vehicle to it's present nbv in their accounts.

But the actual value of their car is what your insurance company valued it at and settled.

LA have now lost money, just like most car owners would when a car is lost unless there was some form of GAP insurance or similar.

LA may well have lost money on the car at the end of the lease anyway, there's no guarantee that your payments and the eventual sale price of the car at the end of the lease would cover the cars full cost. That is the gamble they take.

I am an accountant so I understand how the car is valued in LA's accounts.

I don't know the legal position in regards to what you, the hirer, are liable for.

I think you'll need to look at the terms of your lease.

If you had the car on any form of finance then you would normally be liable for any shortfall between the insurance payout and the outstanding finance.

I suspect LA cover this in their terms and conditions, it won't be the first time one of their cars has been subject to a total loss insurance payout.

I would also look at your insurance policy, does it refer to leased vehicles?

The VAT treatment of leased cars is very specific and may be relevant.

I would say that expecting a £34,000 car to still be worth £24,500 at two years old is a little optimistic and that your insurance company seem to have made a decent settlement.

I think the nbv they talk about is not so much the market value of the car, its more akin to a finance shortfall.

Look at your lease agreement to work out what your liability is.

Ectophile

I suspect they are using a simple straight line depreciation, because accountants like to do that.  Start with the initial price.  Estimate the value at the end of the contract when they sell on the car.  Draw a straight line in between.

But it's not the way that cars really depreciate.  But it makes the maths easier for them.

You do need to check what your lease says about a car being stolen.

If the lease doesn't say, then just because a big company says you have to do something, it doesn't necessarily mean that you actually have to do it.  Options include going to the financial ombudsman, or simply refusing to pay and letting them take it to court.

matt_drummer

Ectophile said:

I suspect they are using a simple straight line depreciation, because accountants like to do that.  Start with the initial price.  Estimate the value at the end of the contract when they sell on the car.  Draw a straight line in between.

But it's not the way that cars really depreciate.  But it makes the maths easier for them.

You do need to check what your lease says about a car being stolen.

If the lease doesn't say, then just because a big company says you have to do something, it doesn't necessarily mean that you actually have to do it.  Options include going to the financial ombudsman, or simply refusing to pay and letting them take it to court.

No we don't.

We usually use the reducing balance method of depreciation, that is what we like

Silver_Nitrate

matt_drummer said:

Ectophile said:

I suspect they are using a simple straight line depreciation, because accountants like to do that.  Start with the initial price.  Estimate the value at the end of the contract when they sell on the car.  Draw a straight line in between.

But it's not the way that cars really depreciate.  But it makes the maths easier for them.

You do need to check what your lease says about a car being stolen.

If the lease doesn't say, then just because a big company says you have to do something, it doesn't necessarily mean that you actually have to do it.  Options include going to the financial ombudsman, or simply refusing to pay and letting them take it to court.

No we don't.

We usually use the reducing balance method of depreciation, that is what we like

HNY.

If you usually use a reducing balance to work out depreciation, when LA emailed me omitting the initial rental and only the 24 monthly rental payments to indicate the NBV is this correct? If so can you help me understand why the initial rental payment isn't used?

Silver_Nitrate

matt_drummer said:

If you accept their method of valuing their car, then just taking off all you paid from the initial cost is not the full picture, there is also interest to take into account so not all your payments reduce the cost of the vehicle to it's present nbv in their accounts.

But the actual value of their car is what your insurance company valued it at and settled.

LA have now lost money, just like most car owners would when a car is lost unless there was some form of GAP insurance or similar.

LA may well have lost money on the car at the end of the lease anyway, there's no guarantee that your payments and the eventual sale price of the car at the end of the lease would cover the cars full cost. That is the gamble they take.

I am an accountant so I understand how the car is valued in LA's accounts.

I don't know the legal position in regards to what you, the hirer, are liable for.

I think you'll need to look at the terms of your lease.

If you had the car on any form of finance then you would normally be liable for any shortfall between the insurance payout and the outstanding finance.

I suspect LA cover this in their terms and conditions, it won't be the first time one of their cars has been subject to a total loss insurance payout.

I would also look at your insurance policy, does it refer to leased vehicles?

The VAT treatment of leased cars is very specific and may be relevant.

I would say that expecting a £34,000 car to still be worth £24,500 at two years old is a little optimistic and that your insurance company seem to have made a decent settlement.

I think the nbv they talk about is not so much the market value of the car, its more akin to a finance shortfall.

Look at your lease agreement to work out what your liability is.

Thank you, I'll read over the points you've made in regard to the lease and liability.

matt_drummer

Silver_Nitrate said:

matt_drummer said:

Ectophile said:

I suspect they are using a simple straight line depreciation, because accountants like to do that.  Start with the initial price.  Estimate the value at the end of the contract when they sell on the car.  Draw a straight line in between.

But it's not the way that cars really depreciate.  But it makes the maths easier for them.

You do need to check what your lease says about a car being stolen.

If the lease doesn't say, then just because a big company says you have to do something, it doesn't necessarily mean that you actually have to do it.  Options include going to the financial ombudsman, or simply refusing to pay and letting them take it to court.

No we don't.

We usually use the reducing balance method of depreciation, that is what we like

HNY.

If you usually use a reducing balance to work out depreciation, when LA emailed me omitting the initial rental and only the 24 monthly rental payments to indicate the NBV is this correct? If so can you help me understand why the initial rental payment isn't used?

Your payments have nothing to do with depreciation.

Your payments are reducing the amount LA have financed on your behalf.

They buy a car, add interest and profit to that amount and then deduct what they think they will recover when they dispose of the car at the end of the lease period.

They then have a total cost of ownership.

They then present that to the hirer in a suitable mix of initial rental and monthly rentals over the duration of the lease.

The interest and costs/profits will be higher in the earl stages of the lease and your payments reduce their cost of ownership of the as the lease progresses.

Eventually, if they have their calculations and estimate of end of lease disposal correct, they end up having made exactly the profits they aimed for when structuring the lease.

If they dispose of the vehicle for more than they predicted they make more profit than they planned for and the opposite if they sell for less they than thought they would. They also make charges for things such as damage and excess mileage that reduces the disposal value over what it may have been.

During the course of the lease your payments will be reducing the value of the car in their accounts, part of each payment is allocated to reducing the value of the car and part of the payment will be allocated to interest, other costs and profits.

They arrive at a new value in their accounts each time you make a payment.

They have told you what that is at the time the lease was ended by the loss of their car.

Your insurance company has paid what they valued the car at when it was stolen.

That is less than LA value the car at in their accounts because the car has depreciated by more than the amount of your payments (including your initial rental)

You are liable for the difference according to LA but this scenario will be covered by the terms of the lease that you and LA agreed to at the outset.


Your calculation

I went back to LA and asked them why they had omitted my Initial Rental of £4690 when totalling the amount I have paid towards the lease, as if this is added to my 24 month payments it equates to £14124.4 not £9434.40. (£33,990.17 -  £14124.4 = £19865.77)

takes no account of any costs LA have incurred.

You cannot think that they will buy a car for £33,990.17, let you use it for two years and then only get back £33,990.17 (£14,124.40 from you over two years and £19,865.77 from you at the end when you lost their car)

They will have made nothing, not one penny and incurred all the costs of providing you with a free car for two years.

That is why the person you spoke to was laughing.

They want £3,502.77 from you.

That is because they have calculated that the cost to them (costs and profit) of providing you with that car was £4,690.00 (which just happens to be the same figure as you initial rental).

(£24,555.77 - £19865.77 = £4,690.00)

They have had £1,187.23 from your insurance company (£21,053.00 - £19,865.77) and want £3,502.77 from you.

At the outset of the lease they did this

Cost of car + Interest/Costs/Profit (£33,990.17 + £4,690.00) = £38,680.17

Hirer pays initial rental of £4,690.00 plus 24 payments of £393.10 (£9,434.40 in total)

Cost of the lease to LA was £38,680.17, you were to pay ££14,124.40 over two years (£4,690.00 plus 24 payments of £393.10) leaving them to dispose of the car for £24,555.77 to recover the balance.

But you lost their car so they now only have £21,053.00, that is £3,502.77 less they they planned for which is why they want it from you.



I apologise for a lot of repetition but hopefully there is one part of it where it will click for you.

matt_drummer

The sad part is that you have probably done LA a favour by losing their car as they were never likely to sell the car for that value.

However, what you will never actually know is what they paid for the car, if the £34k is the rrp of the car they won't have paid that.

Silver_Nitrate

matt_drummer said:

Silver_Nitrate said:

matt_drummer said:

Ectophile said:

I suspect they are using a simple straight line depreciation, because accountants like to do that.  Start with the initial price.  Estimate the value at the end of the contract when they sell on the car.  Draw a straight line in between.

But it's not the way that cars really depreciate.  But it makes the maths easier for them.

You do need to check what your lease says about a car being stolen.

If the lease doesn't say, then just because a big company says you have to do something, it doesn't necessarily mean that you actually have to do it.  Options include going to the financial ombudsman, or simply refusing to pay and letting them take it to court.

No we don't.

We usually use the reducing balance method of depreciation, that is what we like

HNY.

If you usually use a reducing balance to work out depreciation, when LA emailed me omitting the initial rental and only the 24 monthly rental payments to indicate the NBV is this correct? If so can you help me understand why the initial rental payment isn't used?

Your payments have nothing to do with depreciation.

Your payments are reducing the amount LA have financed on your behalf.

They buy a car, add interest and profit to that amount and then deduct what they think they will recover when they dispose of the car at the end of the lease period.

They then have a total cost of ownership.

They then present that to the hirer in a suitable mix of initial rental and monthly rentals over the duration of the lease.

The interest and costs/profits will be higher in the earl stages of the lease and your payments reduce their cost of ownership of the as the lease progresses.

Eventually, if they have their calculations and estimate of end of lease disposal correct, they end up having made exactly the profits they aimed for when structuring the lease.

If they dispose of the vehicle for more than they predicted they make more profit than they planned for and the opposite if they sell for less they than thought they would. They also make charges for things such as damage and excess mileage that reduces the disposal value over what it may have been.

During the course of the lease your payments will be reducing the value of the car in their accounts, part of each payment is allocated to reducing the value of the car and part of the payment will be allocated to interest, other costs and profits.

They arrive at a new value in their accounts each time you make a payment.

They have told you what that is at the time the lease was ended by the loss of their car.

Your insurance company has paid what they valued the car at when it was stolen.

That is less than LA value the car at in their accounts because the car has depreciated by more than the amount of your payments (including your initial rental)

You are liable for the difference according to LA but this scenario will be covered by the terms of the lease that you and LA agreed to at the outset.


Your calculation

I went back to LA and asked them why they had omitted my Initial Rental of £4690 when totalling the amount I have paid towards the lease, as if this is added to my 24 month payments it equates to £14124.4 not £9434.40. (£33,990.17 -  £14124.4 = £19865.77)

takes no account of any costs LA have incurred.

You cannot think that they will buy a car for £33,990.17, let you use it for two years and then only get back £33,990.17 (£14,124.40 from you over two years and £19,865.77 from you at the end when you lost their car)

They will have made nothing, not one penny and incurred all the costs of providing you with a free car for two years.

That is why the person you spoke to was laughing.

They want £3,502.77 from you.

That is because they have calculated that the cost to them (costs and profit) of providing you with that car was £4,690.00 (which just happens to be the same figure as you initial rental).

(£24,555.77 - £19865.77 = £4,690.00)

They have had £1,187.23 from your insurance company (£21,053.00 - £19,865.77) and want £3,502.77 from you.

At the outset of the lease they did this

Cost of car + Interest/Costs/Profit (£33,990.17 + £4,690.00) = £38,680.17

Hirer pays initial rental of £4,690.00 plus 24 payments of £393.10 (£9,434.40 in total)

Cost of the lease to LA was £38,680.17, you were to pay ££14,124.40 over two years (£4,690.00 plus 24 payments of £393.10) leaving them to dispose of the car for £24,555.77 to recover the balance.

But you lost their car so they now only have £21,053.00, that is £3,502.77 less they they planned for which is why they want it from you.



I apologise for a lot of repetition but hopefully there is one part of it where it will click for you.

Thanks for the in depth response, that's exactly what I was hoping for a lot of that clicked, just needed someone to support me with the whys an hows. Having not leased before it wasn't made clear to me in their correspondence when I originally asked.

Thanks again for your time taken in replying.

matt_drummer

No problem,

I feel for you.

The whole point of leasing and PCP for me is knowing what you'll pay and taking the gamble out of what the car will be worth years later. It makes earlier adoption of things like ev's easier.

Had your car not been stolen it's value at the end of the lease would have been LA's problem.

Now I would advise checking what the contract says just to make sure they are complying with what you both agreed at the outset.

Come back if you need help.

And, if you do it again, get GAP insurance, it's one of those things that car dealers try to sell you that actually makes sense.

But arrange it yourself, it will be cheaper.

Also you probably don't need it in the first year as most insurers pay out the full new cost in the first year, but again, check that.

You can buy GAP insurance later, you don't have to buy it on day one.

ETA

Please don't just take my word for it, I have just explained how they get to their figure and why. I am not saying that their figure is correct.

You must check that they are actually correct by looking at the agreement, it will be set out what should happen.