asset finance - business vehicle lease

Business vehicle leasing

Vehicle leasing is a popular option for many businesses. It offers numerous advantages over outright vehicle ownership, including cost savings, flexibility, and access to the latest models and technology. 

This guide provides you with everything you need to know about leasing a vehicle.

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What is vehicle leasing?

Vehicle leasing is a flexible and cost-effective option for a business that needs access to vehicles, without the burden of ownership. 

The business essentially rents a vehicle for an agreed-upon period, typically ranging from 1 to 5 years. Instead of purchasing the vehicle outright, they will make fixed monthly repayments to the lender. At the end of the lease term, the business returns the vehicle, and has the option to lease a new one. This allows a business to use the vehicle for their needs, without tying up a significant amount of capital or dealing with the responsibilities of ownership, such as maintenance and depreciation. 

Vehicle leasing offers business flexibility, predictable costs, and the opportunity to upgrade to newer models more frequently.

Pros and cons of vehicle leasing

It's important to carefully consider the pros and cons of vehicle leasing. Consider your business's specific needs and circumstances before deciding whether it’s the right option.

Pros of vehicle leasing

  • Lower initial costs 
  • Leasing a vehicle typically requires a smaller upfront payment compared to purchasing, making it more accessible for small businesses with limited capital.
  • Predictable expenses
  • With fixed monthly payments, you can budget more effectively as you know the exact cost of leasing the vehicle. This helps with future planning and cash flow management.
  • Access to newer models 
  • Leasing allows you to drive newer vehicles with the latest features and technology. This can provide a professional image for your business and potentially improve efficiency or safety.
  • Maintenance coverage
  • Many vehicle lease agreements include maintenance packages, alleviating the burden of servicing and repairs. This can save your business time and money on maintenance costs.
  • Tax deductions
  • With van leasing, 100% of tax is deductible. When leasing a car, 50% is tax deductible if used for personal use and business use. If the car is solely used for business purposes, it will be 100% tax deductible. You can consult with an accountant to understand the specific tax benefits available to your business.
  • No minimum trading time
  • To lease a vehicle, there are many lenders that do not require a minimum trading time. This makes it an accessible option for startup businesses. 

Cons of vehicle leasing

  • No ownership 
  • When you lease a vehicle, you don’t own it, so at the end of the term, you must return it. This means you won’t have an asset to sell or trade-in for value.
  • Mileage restrictions
  • Lease agreements often have mileage limits, exceeding these limits can result in additional charges. If your business requires extensive travel or has high mileage needs, leasing might not be the most suitable option.
  • Long-term commitment
  •  Lease agreements typically have fixed terms, and terminating the lease early may incur penalties. If your business needs change unexpectedly, you may face difficulties in ending the lease without financial consequences.
  • Wear and tear charges
  • When returning the leased vehicle, you may be responsible for any excess wear and tear beyond normal usage. It’s important to maintain the vehicle to avoid additional charges.
  • Limited customisation
  • Lease agreements usually have restrictions on vehicle modifications or customisation, so it may not be suitable if personalisation is important for your business branding. 

5 ways to get the most out of vehicle leasing

1. Choose a vehicle your business can afford 

When you’re considering vehicle leasing, choose a vehicle you can afford to lease, so that it doesn’t hurt your business’ cash flow. Considering factors such as the age and make of the vehicle will help to find a vehicle that fits within your budget. You should ensure that you’re able to comfortably repay the monthly repayments before accepting the lease. 

2. Have a good business credit score

Your business credit score plays an integral part of the lender’s decision in offering you vehicle finance. Having a good credit score means that you will be able to access better lease terms and lower interest rates, making the lease more affordable for your business. 

3. Prepare your documents

When applying for vehicle finance, you’ll need to have documentation ready to present to the lender. Having your last set of filed accounts, business bank statements and basic personal information (such as your address and date of birth) will help to make the process of getting vehicle finance quicker and easier. You can work with your accountant to put these together.

4. Proper vehicle maintenance

By maintaining your vehicle, you can reduce repair costs and maximise the lifespan of your leased vehicle. Maintaining the vehicle in a good condition not only ensures their efficient performance, but also helps avoid penalties or additional charges at the end of the lease term.

5. Optimise the lease term 

Determine the ideal lease term based on your business requirements. If you need the vehicles for a shorter period, consider a short-term lease to avoid long-term commitments. Or, if you anticipate a longer-term need, negotiating a more extended lease could help you secure better rates.

frequently asked questions about vehicle leasing

Ending a lease early typically comes with penalties, as the lender expects a certain stream of payments over the entire term. However, some lease agreements might have options for early termination, often with associated fees.

Customisation is generally discouraged, as you're expected to return the vehicle in good condition. Any modifications that reduce the vehicle's value or require restoration can result in additional charges.

At the end of the lease, you have several options: you can return the vehicle, purchase it at the predetermined residual value, or sometimes extend the lease. Be prepared for any excess mileage or wear-and-tear charges if applicable.

You are generally required to have comprehensive insurance that covers the leasing company's interests. The leasing agreement will specify the insurance requirements.