How does leasing work?
Leasing is an arrangement where a leasing company leases an asset to a company or individual over a given period (usually 2 – 5 years). So that the individual or business is not putting too much pressure on cash flow.
And by the end of the lease period you can either extend the lease or buy the asset outright according to the terms and conditions of your agreement.
Car leasing has become more and more popular for reasons such as:
Less exposure to depreciating assets: Leasing removes exposure from depreciating assets especially with vehicles. Did you know that vehicles automatically lose up to 11% of its value immediately you drive it out of the lot?
That means by driving a €35k vehicle out of the lot right now, you have lost about €7k that is a bit hit for a business if your fleet runs into the double digits.
Reduced capital expenditure amounts as vehicles are leased and the company deals with monthly costs and no up-front payments. This is just obvious, you do not get to add a lot of capital upfront and that helps your business with cash flow.
Off balance sheet funding which will be highly significant for the financial standing of the company. For those that do not know what this means, a company will not need to include a liability on its balance sheet. It is an accounting term and impacts a company's level of debt and liability for the company.
Fewer maintenance issues – which will positively impact your business, employees and cashflow.
Now that you know what leasing is and how it can impact you and your business, here are a few to do’s vehicle leasing dos and don’ts
Always Read the Fine Print
When shopping for a lease vehicle, you will come across some different offers, it is up to you to do your due diligence before signing the dotted lines.
When you read the fine print, this is when you realise there could be other things to consider that could astronomically balloon your payments things like driving limit per year, and/or large down payment and security deposit. When you factor in all these additional costs, it is not as great of a deal as you initially thought.
With leasing, remember that you will be signing a long-term contract and every consideration needs to be made before you fully agree with the terms.
Always Negotiate the Purchase Price
Special lease deals from the manufacturer typically offer the lowest lease payments, but you should still negotiate further. Before you are a customer, every business will generally jump through every possible hoop to ensure that you become a client.
So, it is in your best interest to negotiate the as low as possible remember after you agree terms breaking it will mean you will pay a fee.
These subsidised leases usually offer inflated residual values and/or lower money factors which result in a lower lease payment.
Always negotiate the price (referred to as the capitalised cost) of the vehicle - even if you're getting a great lease deal already.
Terminate Your Lease Early
This is the most expensive mistake you can make when leasing.
Think of a leasing contract like a rental contract. If you rent a house, you usually sign a long-term contract and agree to pay penalties if you do not hold up your end - same thing with car leasing - only worse!
Every leasing company charges an early termination penalty that can be in the thousands. There are less expensive ways to get out of your lease early, but none of them are attractive.
If you're going to lease a car, make sure you can commit to the length of the lease and follow through.
Accessories a Leased Vehicle
As much as you may want those fancy wheels or premium sound system, getting these kinds of accessories will hurt you financially when leasing a car.
Leasing companies have a limit on the retail value they assign for each model. If you over-accessories the vehicle, you're going to be paying for equipment that you'll only use for 3 or 4 years unless you choose to buy the asset outright at the end of the lease period.
Otherwise, you are essentially buying this gadgets for the next person that will own the vehicle, so be careful which options you add to the vehicle.
Accept an Open-End Lease.
What is an open Ended Lease?
An agreement that obliges the lessee (that is the person making periodic lease payments) to make a balloon payment at the end of the lease agreement amounting to the difference between the residual and fair market value of the asset.
Since the lessee must purchase the leased asset upon lease expiration, that person bears the risk that the asset depreciates more than was expected by the end of the lease.
Let us face it leasing only gets more and more complex as the number of fleet increases. But with long term rental by Europcar Business Fleet Services, you can avoid all this hassle with just one-word FLEXIBILITY.
With Business Fleet Services you can return the vehicle anytime you wish once you meet the minimum rental period of 28 days or you can keep using the vehicle as long as you want. Another thing with our offering is you do not need to keep to one car type.
If our business need changes from vans to cars, all you need to do is bring the back the vans for your needed vans.