Lease or buy fleet vehicles? The common yet important question that every fleet manager faces. And, the bitter truth is- the decision is never easy and depends on numerous factors like: organization’s goal, budget, and size.
Here comes the purpose of this blog. It will take you through the benefits of both the options and provide some tips to keep in mind while choosing the one. So, read on to explore leasing vs buying the fleet vehicles.
Leasing fleet vehicles
Leasing can be considered as renting a vehicle for a longer duration. Minimum it is for a year. Technically, in leasing, fleet manager pays for the use of a vehicle instead for the asset. Leasing is of two types:
- Open-end leases
It starts with a minimum lease agreement, often a year, and allows extending month-to-month at your convenience. And, when the lease term ends, you may opt to sell the vehicles.
- Closed-end leases
It is a fixed time leasing agreement with definite monthly payments. Under this, the vehicles needs to be kept maintained, and predetermined mileage cannot be exceeded. Otherwise, in either case, penalty needs to be paid.
Now, let us discover the advantages of leasing vehicles.
Advantages of leasing fleet vehicles
- Saves capital cost
Leasing vehicles is less expensive than buying them completely. Thus, your company is able to save more money. The money saved can be invested in other areas of core business operations.
- Saves maintenance and fuel costs
Leased vehicles prevents you from visiting repair workshops more frequently. Seriously, it is a fact! Leased vehicles usually needs less maintenance and have better fuel mileage. Subsequently, leased vehicles lets you experience greater uptime, and reduced maintenance and fuel cost.
- Can be treated off the balance sheet
Buying vehicles involves spending a huge amount, which affects your company’s debt-to-equity ratio and makes your company less impressive to investors. On the other hand, leasing is not much expensive and can usually be treated off the balance sheet.
- Offers flexibility for vehicle replacement
How frequently can you replace your fleet vehicles? In leasing, the average time is three years. Now, imagine having the possibility of replacing vehicles every three years or as long as the agreement is. That is, there is less liability and cost with leased vehicle, offering greater flexibility in changing vehicles.
- Needs less administration
Leased vehicles needs less paperwork. Processes like tag and license renewal, payment of title retention and property taxes, etc. is the responsibility of the leasing company.
- Provides newer and upgraded vehicles
Leased vehicles are usually the upgraded model vehicles that comes with numerous benefits like latest technology and safety features, ultimately needs less maintenance and offer better fuel mileage.
Leasing vehicles seems pretty advantageous. Right?
Undoubtedly, buying vehicles is expensive, but it also has few advantages over leasing. So, let us now consider its associated benefits.
Advantages of buying fleet vehicles
- Imposes no limitations
Here, you experience freedom! Vehicle owners are not bounded with defined mileage or needs to pay penalty for wear and tear of vehicles.
- Offers flexibility of changing vehicles
Vehicle owners are not restricted to keep the vehicle for definite period. They can switch to new vehicles as and when required with no additional penalties.
- Offers tax benefits
The price of vehicles gets depreciated and the benefits of its price deductions can be used to offset profits. And, these benefits stays with vehicles owner.
- Enables to reinvest equity
Ideally, the cost of fleets proves less than its value for the business. That is, your fleets gain positive equity. And, the same can be reinvested back to the company.
Now you have read the benefits of both leasing and buying vehicles. So, let not the confusion hinder your decision process. Rather, establish your business goals and requirements, and keep the following tips in mind to simplify your decision.
Which is best for your business – leasing or buying fleet vehicles?
Understanding the way your fleets work for your business is the best approach to determine which vehicle acquisition suits your company. Take a note of:
- the way you are using your vehicles
- purpose of vehicles
- duration for which vehicles need to be used
Still, if you are confused to select the one option that suits best for your business, consider using fleet management software to recognize the current vehicle workflow and your business future goals. Determine factors like vehicles turnover rate, maintenance schedule, etc. to analyze whether leasing or buying is more suitable and beneficial.
So, what are your reasons for leasing or buying your fleet vehicles? Let us know by your comments below!