Commercial vehicle leasing is growing more popular than traditional financing for companies big and small. Leasing provides an easy and cost-efficient way to provide company vehicles to employees. Not only is leasing cost-efficient and allows a company to customize the leasing terms and vehicles; it offers a company financial benefits over traditional purchasing a vehicle. Vehicle leasing has two main options to lease, open-end lease or a closed-end lease.
Open-End or Closed-End Lease
When it comes to leasing a commercial vehicle for business there are two main options to lease, open-end or closed-end leasing. Open-end leasing is a common every-day standard lease for consumers and small businesses. The leasing company of the vehicle assumes depreciation and has more control over the lease terms of the lease by restricting the annual mileage to either 10,000, 12,000 or 15,000 miles per year and length of the contract 12 or 48 months. If the consumer or business exceeds the annual mileage, it may be charged additional $.10 to $.15 per each mile over. At the end of the contract, the company has the option to purchase a vehicle for the remaining value less the depreciation or return to the lessor.
Closed-end leasing is used more commonly in commercial vehicle leasing with a fleet of five or more vehicles. The mileage can be 5,000 to 50,000 miles per year. The business assumes deprecation risk of the vehicle. This option allows the company more flexible terms even lifting mileage restrictions. At the end of the lease contract, the company has the option to purchase the vehicle for the remaining value or pay the difference between the market value and remaining value of the vehicle.
The business is liable for insuring the vehicle and yearly registration along with little out of pocket expense for repairs. Depending on how much driving requires will determine whether a business will use the open or closed leasing.
Benefits of Leasing VS Buying
- Tax Benefits- monthly lease payments may be tax-deductible business expense.
- Low Monthly Payments- leasing offers lower monthly payment compared to purchasing a vehicle.
- Off Balance Sheet Expense-leasing vehicles are off-balance sheet expenses creating a favorable outlook to lenders. A traditional vehicle financing may cause a business to take on more debt on the balance sheet side.
- Low Maintenance or No repair- leased vehicles are typically covered under the manufacturing warranty or a company may purchase a maintenance package.
- Little or no down payments. Traditional financing can have large down payments for commercial vehicles.
- Customized Options eco-friendly vehicles, mix and match vehicles, mileage, and length of a lease can all be customized.
- Saves Capital- leased vehicles can help save working capital for a business to grow.
- Improve ROI or ROA – leased vehicles can help a business Return on Investment or Assets for the company.
- Depreciation made easy no crazy depreciation schedules; just pay for the depreciation on the vehicle within the lease agreement.
Ending Vehicle Lease
Leasing a vehicle makes it easy for business to dispose of older vehicles after lease contract ends, however returning leased vehicles are subject to what is referred to as “Wear and Tear” of a vehicle. The age and mileage as well as what are normal wear and tear (tires) or excessive wear and tear (damaged bumper) and the company could be liable for damages.
Commercial vehicle leasing over purchasing vehicles offers many advantages for a company needing business transportation. Not only can a company choose a flexible plan with easy returns but also upgrades with open-end leasing or the option for more long-term plan with maintenance packages with closed-end leasing; it offers many solutions to help a company stay financially strong.