20 Nov How Does A Fleet Lease Work?
Business owners are often faced with the decision of whether to get a fleet lease or to purchase them outright. It’s not always easy to determine whether leasing or buying will be most advantageous for your business, so it will generally be necessary to gather all the information related to finances and the vehicles themselves before making a decision.
For many companies, the right decision is to lease vehicles because they are usually well maintained by the owning company, and it’s generally far less expensive to lease the vehicles than it is to buy them. When you arrange for a fleet lease on vehicles that you will use in your business, you will pay for the use of those vehicles for an agreed-upon period of time.
Most often, leasing agreements cover multiple vehicles and are in effect for at least a year or two. All kinds of vehicles can be leased out in this manner, for instance, personal trucks, cargo vans, and standard passenger cars. More and more companies are finding that leasing works to their advantage financially, while also relieving them of the burden of maintaining those vehicles and keeping them roadworthy.
What Is a Fleet Vehicle?
A fleet vehicle is one that is owned or leased by a business and is often used by employees in the performance of their job duties. For instance, it may be necessary for a salesman to have a fleet vehicle to visit contacts and clients to generate sales for their company. Fleet vehicles can also be large trucks that are used to transport goods either locally or between states, and this often involves quite a few trucks being leased by one company. Depending on how big the fleet of vehicles you have, it may be necessary to have them overseen by a fleet manager, whose responsibilities include keeping the fleet operational, and ensuring that the vehicles are not abused or misused.
Advantages of a Fleet Lease
The main advantages of leasing your fleet are all connected to financial reasons, and since all business owners have the goal of keeping costs down while also maximizing profits, leasing presents a powerful appeal. The initial cost of acquiring a fleet of vehicles would be enormous if you were obliged to purchase all those vehicles, whereas leasing that same fleet would be dramatically less expensive. Another major advantage of leasing fleet vehicles is that you’re not obliged to perform maintenance on those vehicles.
Since the responsibility for maintaining the vehicles still rests with the vehicle owners, you don’t have to invest any money in maintenance or repairs, nor do you need a staff of personnel who are qualified to carry out those repairs. In effect, leasing allows you to enjoy all the benefits of owning a fleet of vehicles, without having to bother with any of the actual hassles of ownership.
Types of Fleet Leases
There are only two major kinds of fleet leasing which are generally made available to companies wishing to acquire vehicles. Both these types of leases involve a minimum period of 12 months and may last as long as two or three years. Open-end leases are ideal for companies that have a short-term need for the vehicles they’re trying to acquire. In this type of lease, there is usually a period such as 12 months which is standard on the lease, and after that time the lease can be continued on a month-to-month basis.
This allows you to acquire the vehicles you need without making any long-term commitment to a leasing company. However, there are some negative aspects associated with an open-ended lease, the first of which is that once that initial year has passed, the leasing company is generally not responsible for maintenance or repairs anymore. In many cases, an open-ended lease will also include what’s known as a terminal rental adjustment clause.
This clause states that when you lease a vehicle from the company you are responsible for guaranteeing a specific resale value. If it turns out that the real resale value is less than the defined resale value, you would be obliged to pay the difference between those two figures. Closed-end leases generally involve time frames of at least three years, and usually more than that. It will generally cost more to obtain a closed-end lease, but it does carry the stability of a longer time frame.
Some leasing companies will stipulate that you must pay for mileage on any leased vehicles since the wear and tear on their vehicles will cover a longer period of time. The one major advantage of committing to a closed-end lease is that you will not be obliged to cover the cost of a terminal rental adjustment clause if that becomes necessary. Closed-end leases are sometimes referred to as walk away leases because the lessee has no obligation to ensure any kind of specific resale value.
Is a Fleet Lease right for You?
At present, the majority of companies who make use of fleet vehicles actually own those vehicles, generally because they reviewed all the aspects of leasing and buying and determined that for their companies, purchasing the vehicles made the most sense. However, that doesn’t mean it’s the best choice for every company, because their circumstances may be different for all companies, and all these must be taken into consideration.
While it’s true that through leasing you have no control over your vehicle assets, in terms of their cost, depreciation, maintenance, repairs, and liquidation, it’s also true that acquiring a fleet of vehicles is far less expensive when leasing them. When you don’t have to invest as much money in leasing a fleet of vehicles, that frees up a great deal of capital that can be used to grow your business or to carry out day-to-day operations.
For many companies, the key to determining whether leasing or buying is right will be to consider whether that extra capital needs to be invested elsewhere in the business, or whether it should be invested in vehicle assets.