To Lease or Buy. That is the Question.
● Pay only for the usage of the vehicle
● Avoid diverting capital away from business objectives
● Possible off-balance sheet reporting
● Predictable budget; one lower monthly payment
● Tax benefits
Leasing allows organizations to maximize cash flow. There are no up-front fees and you can use the excess cash you save to reinvest in the core business. It can make sense for many businesses because it requires less administration on acquisition, titling, and remarketing. For many organizations, it just makes good business sense to lease. It enables you to concentrate on your core business and free up capital that would otherwise be tied up by acquiring vehicles.
There are times when owning makes better sense than leasing. For fleets that have vehicles that are used infrequently or specialty-use vehicles with a limited resale market, it might be better to purchase vehicles.
While it may seem like a daunting process for a fleet to switch to fleet lease arrangements, with the correct preparation and by asking the right questions, it can be fairly painless. The article provides some helpful tips to ease fleets into the process.
Make Sure You Understand Leasing Fundamentals
Understanding leasing fundamentals is crucial to ensure that you choose the best leasing arrangement for your fleet. There are two basic types of vehicle leases, and both have variations. Here are some of the basics.
Closed-End Lease: In a closed-end lease, the terms of the lease are fixed, based on the agreed-upon mileage and condition of the vehicles determined by the lessee’s (the company that is leasing the vehicles) usage. The risk of ownership remains with the lessor (the leasing company).
Open-End Lease: In an open-end lease, a significant degree of ownership risk is held by the lessee. Basically, the total costs of the lease costs aren’t known until the end of the lease and the vehicles are sold. If there are any gains or losses on the sale of the vehicles, it is applied to the lessee’s account.
TRAC Leasing: TRAC (Terminal Rental Adjustment Clause) leasing is a modified open-end lease that allows you the same flexibility of the traditional open-end lease but without needing to depreciate the vehicle down to zero over a specified period of time.
Equity Lease: Equity Lease™ is a hybrid lease offered by Capital Lease Group, which combines the best of previous lease options to maximize your opportunities while minimizing your expenses and risk. You can learn more here.
Choosing the Best Lease for Your Fleet
In addition to finding a lessor, probably the biggest decision a fleet will have to make is choosing which type of lease to go with.
The advantage of a closed-end lease is predictability. It makes sense for a company that is looking for a predictable, flat payment each month, and has the time to be mindful of excess mileage and turn-in parameters, to keep the costs down.
An open-end lease can work well for larger, high-mileage fleets. It typically provides a greater flexibility and economy (dependent on a good used-car market and maximized sales results) than a closed-end lease. However, it requires close attention by some level of in-house fleet management.
Making the Decision That’s Best for Your Fleet
It is important that the lease arrangement you choose is best aligned with your fleet’s goals for the short term and long term. Probably the number one factor that fleets have to determine when deciding on a lease type is their tolerance for risk. Also, oftentimes, companies will focus solely on price, but it is important to focus on total costs versus simply upfront transaction costs. Don’t get caught up focusing on the interest and fee portion of a lease and losing sight of the total cost of leasing and operating the vehicle over its lifecycle.
If you’re considering leasing your fleet or have questions about which fleet lease arrangement may be right for your fleet, contact Capital Lease Group . We work with numerous organizations across a wide variety of industries to help them determine the most appropriate leasing choices.
We are committed to structuring a lease that will be designed to fit your business rather than having your business conform to the confines of a standard lease. We will invest the time to understand each customer’s individual needs while offering a full range of leasing services and products that will complement each customer’s goals. Our experienced staff of knowledgeable experts in sales, administration, and service will help you feel comfortable so that your main focus will be on your company’s vision while we handle all of your fleet requirements.
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