One of the most important investments and at the same time one of the most expensive investments that businesses should take is to provide their employees with business vehicles.
As previously said, providing employees with business vehicles most commonly means purchasing one- which means a large lump sum payment.
Yet, most business owners do not want to make that final purchase.
Hence, many businesses in the USA nowadays have found other options to obtain a new vehicle- such as is the one of commercial Car Leasing.
The option of commercial car Leasing won’t keep you a large sum of money.
By taking this option you will have a good cash flow and will be in the situation to stay agile.
So what exactly is commercial car leasing? And how does it work?
Let’s find out!
What Is Commercial Car Leasing?
To start by clarifying what actually a commercial car leasing is.
Commercial car leasing is gaining more in popularity.
The actual commercial car leasing or also known to many as business car leasing is when a given business is leasing cars for their company employees.
The leased commercial cars should be used for work purposes only.
In return for the leases, the business pays an agreed monthly amount to the lessor.
As previously mentioned, commercial car leasing is gaining more in popularity and it is mainly so because they allow businesses to supply new vehicles to their employees without making an actual purchase. After all, asset outright can be both potentially costly and time-consuming.
What Are Some Of The Features Of Commercial Car Leasing?
Commercial car leasing comes along with few features. Which features can be beneficial for the businesses that decide to go for commercial car leasing.
In addition, the first and foremost feature is the access to upgrades. That is to say, the access to upgrades enables the user to receive a new car each time he/she renews the contract.
Looking on the positive side, this commercial car leasing feature will help your employees to enjoy all the benefits that come from driving a new car. By that, you will also maintain a professional company image and reliability.
On the other hand, we have the support feature. Yet, what does this feature includes?
With the support feature, commercial car leasing users can enjoy a peace of mind because the leasing companies will manage the aspects of running your fleet.
So, we’ve come to the feature of keeping your people in well-maintained vehicles. Leaving any concerns that your staff should be using their own vehicles can be put aside thanks to the commercial car leasing.
Having a car that is fit for the purpose of your business and employees can definitely bring you peace of mind.
At this point of view of commercial car leasing we encounter the fixed payments feature.
It is good for you to note that, when utilizing commercial car leasing, you will be able to make a fixed monthly repayment. This agreement will help you determine your annual budgeting.
Nonetheless, all these features of commercial car leasing that I have mentioned can help you avoid being adversely by depreciation with fluctuation in the car re-sale market.
Leasing vs. Buying a Company Car
Every business structure and financial situation is different. Starting from this fact, we can enumerate that there is no magic formula that businesses can use in order to determine whether they should choose to lease or to buy a company car.
Hence, there are always few crucial things that should be taken into consideration:
- Mileage– This is an important thing that should be taken into consideration because after all mileage is an important cost and as such it must be factored in. In general commercial cars are typically more driven that personal cars are;
- Length of Ownership– On the other side we have the length of ownership, which is one of the most important factors in commercial car leasing because it indicates for how long does your business plan to have the car.
- Total Cost of the Car– The total cost of the car brings important considerations in regards of the value of the car at the end of the lease. You can make an appropriate comparison between the lease vs. the ownership period. Yet, when calculating the total cost of the car- you should not forget to include the taxes too.
Nonetheless, if you decide to go for commercial car leasing, then you should know that there are two options that the leasing company will offer you. An open lease or a closed lease.
Yet, before you make the final step, you will have to have in mind the following information about the car:
- The manufacturer’s suggested rental price;
- Down payment;
- Final negotiated price of the vehicle;
- Usage tax;
- Length of the lease;
- Car value at the end of the term- that is to say the residual value;
Hence, before signing any commercial car leasing contract you will have to make a choice between open lease or a closed lease.
Open Lease vs. Closed Lease
What is an open lease? What is a closed lease? More importantly which the difference between an open lease vs. closed lease is?
To start with the open lease.
Most commonly leasing companies are suggesting open lease for commercial car leases. It is so because, through the open lease, the lessee is paying the difference between the residual and the actual resale value– at the end of the lease.
In general, if it happens that the vehicle is driven more than it was estimated that it would be driven, then it can result in an increased cost for the lessee.
Hence, if it happens a situation like this, then the lessee will pay only for the extra mileage.
On the other hand, the closed lease is gaining more popular amongst consumers. It is so because at the end of the lease term, the lessee of the car can enjoy his/hers buying options.
That is to say, the lessee can have the chance to purchase the vehicle at the residual value price or to return it to the leasing company by paying penalties at the same time (if there are excessive mileages and damages).
Residual Value of Leased Vehicles
Residual value is a term that is often used in the car leasing industry.
Moreover, the residual value is in fact the actual value of the car at the end of the lease.
So, to make things clear, a residual value of the leased commercial car is the actual amount that a business expects to sell an asset for at the end of its life.
Nonetheless, the residual value is closely interconnected with the relationship to the payments.
Tip: Pay attention to the following- if the residual value at the end of the month are high, then at the end of the lease the residual value will be lower- and vice versa.
Consider Lease Term Length
Generally speaking, short term leases are way more costly than long term leases are.
It is so because the residual value- that was previously mentioned, will go down faster in the first 24 months.
The vehicle always depreciates faster while it is new than later in its life.
Estimate Mileage Before Leasing
One good way that you can go if you decide for commercial car leasing is to estimate the mileage before leasing.
Actually it is recommendable that before you sign the lease contract to estimate the annual mileage for your use of the car.
Moreover, the typical lease in general has 12.000 miles on a yearly basis.
It is of a great importance to estimate the mileage before leasing, because otherwise you will have to pay for the additional mileage that is being used at the end of the lease.
Lease Fees and Additional Payments
Lease fees and additional payments are something that dealers do like to add on each lease contract.
So, what you as their future client should try to negotiate these fees out or at least down.
Also, expect for the car leasing company to require an advance payment.
Leased Company Cars and Taxes
Taxes must be considered even when you are leasing a commercial car.
Thereupon, let’s start up with the fact that leased vehicles are not depreciated. Yet, the business driving costs for the leasing vehicles can undergo deduction (it can be done under certain circumstances and limits).
Speaking of deduction- the user will have to use the actual cost method in order to calculate the driving deductions- so that he/she can deduct the costs of the lease payment.
All in all, businesses can use commercial car leasing as a way in which they can run company cars with low monthly payments. By that they are setting the maximum miles for the contract period.
Benefits From Commercial Car Leasing
Here are few reasons why you should consider commercial car leasing as the next move for your business.
Improves Your Cash Flow
When you need to buy cars, you are getting into a capital-intensive area – when you opt for contract hire you are able to invest your finances into your business and improve your cash flow.
One of the ideal aspects of car leasing is that you gain an extra line of credit, this means you can free up money to use in your business and provide a solution to cash flow issues. As we noted above, you don’t need to use your cash on a depreciating asset and instead can use it to expand your business.
You Can Take Advantage Of Cars Offered
Since there are many contract hire firms who all want you as their customer, you really can use the market to your advantage.
Be sure to check out all of your options so that you get the best deal on the latest model. Or you could use a small fleet supplier like Intelligent Car Leasing.
Small fleet leasing suppliers like this one are experts in the industry – they may be able to find you a great vehicle that you hadn’t thought of until now.
Some firms will provide a price match service so make sure you find out what deals are on offer before you sign anything.
Have A Set Motoring Cost For Your Business
We are seeing some good signs that the end of the recession is getting closer. However, during a time when cash flow is a worry you really don’t want to have your business tied up in loans and overdrafts related to your business motoring needs.
When you opt for business car leasing you get rid of the need to find initial capital to buy company cars, all you need to do is pay the agreed monthly figure – that means you can budget the cost into your business finances.
Lastly, when you reach the end of the contract period the car is returned and sold which means you don’t have to worry about depreciation or getting the vehicle sold.
Reclaim 50% Of VAT
Business car leasing is subject to VAT, however, if your business is VAT registered you will be able to reclaim 50% according to VAT Global. This means that on your monthly invoices you will be able to have a 50% VAT back claim.
It isn’t possible to claim 100% as in nearly all cases private use of the car is also included. If your lease car is a pool car with no private use you will be able to claim 100% of the VAT back.
Whatever way, it makes VAT sense to fund your business cars.
Having a maintenance contract as well as the monthly business car rental means you can claim 100% of the VAT back on this. Restrictions do not apply.
Enjoy Improved Fuel Economy And Better Safety
The latest car models provide reliability, durability and great fuel economy, things that your staff, as well as your business, will greatly benefit from. This will help to lower your expenses, as well as your staff’s personal outgoings, as well as company car tax issues. In addition, in the event of a road traffic accident, they have the best protection since they are driving the safest cars.
A man sitting at a computer looking at the new VAT scale charges.
To enumerate, commercial car leasing seems to be more than a good option for all types of businesses. Especially for the ones that want to enjoy a better peace of mind.
As you had the chance to read in this article, commercial car leasing comes with a lot of benefits, both for the businesses that decide to use this service as well as to their employees that get to drive new leased commercial cars.
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