Know The Basics of Business Car Leasing

Posted by Shrikant Sharma on May 24th, 2019

By leasing your business vehicles, you can lessen the upfront costs of getting your employees behind the wheel. However business vehicle leasing might invite mileage limitations depending on the type of contract you choose. And it can turn out to be expensive in the long run. By opting for a business car lease, you can upgrade your vehicle every few years. This will not only allow you to take advantage of new technology and safety features, but you can also keep your monthly costs low. Business owners can choose from two types of leases- open-ended and closed-ended agreements. Both come with a purchase option that allows you to buy your vehicle at the end of the lease term. Alternatively, you can also return it and upgrade to a newer model.
 
Open-ended leases:

Also known as terminal rental adjustment clause (TRAC) leases, these are usually more popular with commercial vehicles, thanks to their short terms and lack of mileage restrictions. This is because you, and not the business car leasing company, are responsible for depreciation, often termed as the residual value of the vehicle. Since your business has to account for any depreciation, your vehicle can be used just as it is needed.

Closed ended leases:

This option may be more popular with individuals, but it can also prove to be quite handy for commercial use. These involve fixed monthly payments, fixed terms and mileage restrictions. Unlike the previous one, in this case you won’t have to bear the cost of depreciation. Also, unless you choose to purchase the vehicle at the end of the lease term, you can put all worries to rest with regard to how much or how little the car is worth.
 
However, it also suffers from a drawback; since it usually lasts anywhere between 3 to 5 years, you cannot get rid of the vehicle throughout the length of the term, unless you opt to end the lease early, which can incur a significant fee. Also, since there is a mileage limit involved, you will have to pay if you go over.
 
If you intend to use your corporate vehicle semi-regularly, a close-ended lease may be more appropriate. However, it is interesting to note that businesses that plan to use their vehicles regularly may not get the best deal out of this type of contract.