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10 things you need to know about leasing vehicles

To lease or not to lease
By Entrepreneur Staff |

Have you been using the family car to make your deliveries? As you expand your business and earn profits, you should consider getting a vehicle that is used solely for business only.

 

If the business requires four or more cars or trucks, consider a fleet leasing program. By leasing instead of buying, you won’t tie up all your capital.

What’s more, lease payments are usually lower than purchase payments. On the other hand, the overall cost can amount to more than that of purchasing the vehicles, and at the end of the lease the lender gets the autos back, leaving your company with no trade-in or sales assets. In addition, if your vehicles rack up high mileage, mileage restrictions may mean leasing is not for you.

If you need a new company fleet every two or three years, then leasing is recommended because you’ll only pay for the cost of using the car for the length of time of the lease, which can range from two to five years. If you can decide you want to buy the car at the end of the lease, you’ll have to pay the residual value.

To get started on fleet leasing, first evaluate the cars and trucks your employees now drive, taking into account mileage, purpose of use and costs so you know what your expenses are.  If you need fewer than 10 trucks, your local dealer can usually accommodate your leasing needs.  If you need more, consult a professional fleet management expert catering to small and medium businesses, to determine which cars and trucks suit your businesses and budget. 

Whether you manage the program in-house or outsource it to a fleet management company or through your car supplier, fleet leasing makes sense economically because you can expect a 5 to 7 percent discount or higher off the vehicles’ price.

WHAT’S THE WORD?

Having a handle on leasing terms before negotiating begins can make this complex process easier—and help you strike a better bargain.

• Capitalized cost: The price of the vehicle at the beginning of the lease.

• Capitalized reduction: You can opt for lower monthly bills by putting a down payment on leased vehicles, although this eliminates the biggest advantage of leasing, which is the ability to hold on to your cash.

• Closed-end lease: You hand back the vehicle at the end of the lease without owning residual value (also called appraised/resale value), which is a fixed amount stated in the contract. If you need new vehicles every two to three years, you can roll over the lease to the latest model each time.

• Depreciation: The peso amount difference between the car’s value at the beginning of the lease and at the end.

• Early Termination: If you have misjudged the length of time you need the leased vehicles and want to hand them over before the lease expires, you will owe an early-termination penalty (stated in your contract).  Determine how long you will need the vehicle before signing a long-term lease.

• Excess wear and tear: If your leased vehicles suffer excessive damage through careless driving habits or lack of routine maintenance, you will be charged for repairs.

• Gap protection: Waives the difference between what your auto insurance will cover and how much is still owed on the vehicle if it is stolen or wrecked.

• Mileage allowances: The standard limit is 12,000 to 15,000 miles a year.  Any number over that can cost an average of 15 cents a mile. If necessary, negotiate a higher mileage allowance.

• Open-end lease: You have the option of buying the car at its fixed residual value, but if the vehicle is worth less than that amount at the end of the lease, you must pay the difference. Leases, whether closed or open, typically do not include insurance, but may include license and title fees. Some require the first and last month’s payments, or a refundable security deposit at signing.

• Residual value: The appraised value of the car at the end of the lease after depreciation, used to set a sales price if the lessee wishes to purchase

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