Fleet Vehicle Leasing V/s Buying: Which One is Right for You?
Vehicles are the backbone of any trucking industry. But at some point, every fleet manager makes a difficult decision in acquiring this significant asset. What? Lease or buy? They have to decide which is best for their business. The answer to this question differs from one organization to another.
You should carefully analyze the pros and cons of each choice before making any decisions. Although leasing a vehicle has a low initial investment, several drawbacks come with it over time.
Similarly, purchasing a vehicle requires heavy investment but has some significant advantages. In this article, we will discuss all considerations before making any decision.
A fleet lease truck is a vehicle owned by a leasing company and leased by a business entity for operation. It is similar to renting but with a more structured and long-term contract.
For example, Company A owns a truck that they do not use. They can lease the same to company B to carry out their operations. In return, they will get a significant monthly payment, and company B will not have to buy any vehicle. It is a win-win situation for both.
One of the advantages of fleet leasing is that managers can enjoy the benefits of the truck without actually buying one. It saves them dollars in purchasing one or getting themselves a loan to own one. They can save capital money to carry out day-to-day functions and earn profits. At the same time, it is affordable for most EMIs. You have to pay a certain amount per month to the leasing company. And they will take care of the maintenance, repairs, fleet management, and sometimes fuel management.
Types Of Leasing
is a type of leasing that allows companies to fulfill their short-term needs for the vehicle. It usually lasts for one year or may continue every month. It is a perfect option for small companies or startups that have just entered the market. It is also helpful for companies to carry out operations in their peak seasons. It protects some from any long-term commitment.
But there is also some downside to this type of leasing agreement. The monthly payment will not include vehicle repairs and maintenance. You will be responsible for that.
The contract also has a terminal rental adjustment clause that holds the company responsible for ensuring the vehicle’s defined resale value. You will have to pay the difference if there is a difference between the actual and determined value.
If you plan to lease a vehicle in the longer run, you can check out closed-end leasing. It is a releasing option that is more expensive than the open-ended one. But it includes vehicle maintenance and repairs charges. There is also no TRAC involved. This type of agreement usually lasts for three or more years.
One of the significant disadvantages of this leasing agreement is that you will have to face certain mileage restrictions. So if you operate internationally or within the intra-state boundaries, you must check the contract carefully.
You can buy your vehicle if you are ready to commit to a heavy initial investment. A fleet vehicle is an excellent investment that can add equity to your business and increase its overall worth.
The best part of buying a vehicle is that you will be the owner once you pay all the installments.
Other benefits of buying your vehicle are
- You will not face any limitations and can operate freely.
- You will not have to restrict yourself to a mileage limit.
- You will also be reaping tax benefits for the vehicle depreciation over time.
- It will also bring cost transparency to your business.
However, they are some noteworthy facts that you need to consider while buying any vehicle:
- You need to examine the purpose of the vehicle to select the appropriate one for the job. You need to check the vehicle size and capacity.
If you need to deliver heavy goods, you need one that can bear the weight. Other things you need to consider are the route distance and cargo type.
- You must estimate your fleet’s budget to choose the best solution without burdening your business.
- You should also check the safety features of a vehicle while purchasing it. It will help you lower the frequency of accidents and get discounts on your insurance premiums.
- You should also check out electric and fuel-efficient options in the market.
- Lastly, you should check the efficiency of the vehicle and how frequently you have to take them to the repair shop.
Common Considerations For Fleet Managers
It is crucial to consider your company’s financial situation before arriving at any decision.
Purchasing a vehicle is an expensive option with heavy upfront costs. However, it is an asset to your fleet and will increase the overall worth of your business. It is also an affordable solution in the long term. How? Even though for some years you will have to incur higher monthly payments, at one point in time, it will eventually stop, and you will become the actual owner of the vehicle. Purchasing a car also has tax benefits.
The vehicle also means you are hindering your current cash flow and affecting your ability to take out other loans for the business. It can also impact the debt-to-equity ratio making your business less attractive to investors.
On the other hand, leasing is a good option if you do not want to bear high upfront costs. Instead, you pay a monthly fee over an agreed time. After which, if you want to lease the vehicle again, you will have to after signing another contract. It also frees your immediate cash flow, so you won’t have to take any other loan to carry out daily activities. It also allows acquiring a better vehicle, i.e., out of your price range.
However, there are some significant disadvantages to leasing a vehicle. Even though it appears affordable in the short run, it can lead to higher costs over the long run.
Before you make any decision, here are some questions you should try to answer to figure out the right choice for you.
- Do you have enough cash in hand for a down payment or upfront purchases?
- Are you planning to keep the vehicle on the road for at least five years?
- Which is your fleet’s preference- cash flow or building equity?
- Do you need to specialize in fitting or equipment for the long term?
- Do you like to upgrade your vehicles more often?
- Do you need to scale for the peak season?
Fleet maintenance is one of the biggest concerns for every fleet manager. Leasing a vehicle is a better option if it is your concern. The trucks are the latest model so you won’t have to take them frequently to the workshops. Additionally, many full-service please agreements include maintenance costs, so you don’t have to incur any additional expenditure.
On the other hand, buying a vehicle means the full responsibility of the maintenance life in your hand. You have to schedule repairs and bear the cost. Also, you won’t have your hand on the latest models, which means less efficiency and frequent visits to repair shops.
Before you decide whether to buy or lease a car for your business, you have to be clear on the purpose of the fleet. You have to figure out how many miles you will be driving in a year.
The leasing agreement will dictate how many miles you can put on the vehicle. You will have to pay additional fees if you exceed the set mileage.
Therefore, you should consider your mileage before making any decisions because it can set limits on your drive time and profits. On the other hand, if you buy a vehicle, you will not have to hold yourself to a set of miles and will have complete authority over how to use your truck.
Leasing is a way more flexible choice than buying one. After every few years, you can replace the tracks and get the latest models. Also, leasing an automobile and returning it is much easier than buying one when you urgently require a specific kind of vehicle. But you should always check the provisions to avoid hidden stipulations or penalties.
Purchasing allows you to customize the truck to your specifications. For example, you can stick flyers and posters on your vehicle to advertise your company wherever it goes. You can also color it to match the theme of your company.
On the other hand, if you are leasing a car, you will need to ask the leasing company for approval.
You should consider your business needs before choosing any of the above options. For example, consider whether your fleet has a mileage cap. Or do you work in several states?
If you often cross borders of the state or country, consider buying a vehicle or leasing one with no and negligible mileage limit.
Leasing a vehicle implies less administrative work. You don’t have to engage in complex processes like tag and license renewal payment of title retention property taxes etc. Your leasing company will manage all those for you.
On the other hand, buying a vehicle requires a lot of paperwork. You will be responsible for title and registration, property tax, and administrative costs associated from time to time.
Difference Between Leasing And Buying A Vehicle
|Pay for what you use
|Pay for the entire cost of the vehicle
|Leasing company takes care of maintenance
|Owner takes care of the maintenance and associated costs
|Easy to change
|You have to sell it, complex process
|At the end of the lease, you can purchase the asset or return it
|You become the owner onces you pay all the amount
|There are mileage restrictions
|No mileage restrictions
|You get to use latest models and hence, you can save on repairs cost and use it efficiently
|The efficiency of the vehicle depreciates over the time
|Leasing company enjoy tax deduction
|You can claim tax deductions
|You cannot transfer the asset to someone else
|You have to complete authority over to whom you sell the vehicle
|More cash flow flexibility
|Less cash flow available to use
|Improved company image with latest vehicles and equipments.
|Poor company brand image of the vehicles are in bad condition
Conclusion- Which One Is Better For You?
So what is the right option for you- Buying or leasing a vehicle? Well, there is no right answer to this question. It depends on the business itself. As a fleet manager, you must assess the advantages and disadvantages of both choices and decide which is best for your company.
In any case, there is one thing that you cannot skip to optimize your fleet efficiency and reduce operational costs. What? A right fleet management system.
A fleet management system can help you streamline fleet operations and bring the best out of your resources. If you are ready to find a good fleet management system for your fleet, let us help you. You should check the Matrack fleet management solution. It is an affordable and powerful solution. It helps you to optimize every single activity of your fleet and increase profits. The company guarantees to help you increase your savings by $2000 annually. Below check out the highlights of the solution and what it offers.
- Guaranteed fleet saving of $2000 per vehicle annually
- Affordable solution
- Flexible dashcam
- Free ELD
- Variety of tracker options
- Easy-to-use platform
What do they offer?
- Vehicle tracking system
- Asset trackers
- Trailer trackers
- ELD solution
- AI-powered Dashcam
- Fuel card
- Mobile application
- Freight factoring