What is Vehicle Leasing?

Vehicle leasing gives a company the ability to utilize cars and trucks without purchasing them. Leasing offers several important benefits to businesses. There is usually little or no down payment, vehicles are always under warranty, and monthly lease payments are generally lower than monthly loan payments. Leasing also allows businesses to turn in their cars and trucks for new vehicles every several years.

Why is Vehicle Leasing important?

Vehicle leasing is because it allows businesses and consumers to use a vehicle without actually having to purchase the vehicle. There are a variety of tax benefits involved with leasing a vehicle as well, including a tax deduction for the price of the vehicle and fees associated with the vehicle.

When a business leases a vehicle, the business does not have to take on the cost of repairs or have to factor in a depreciating asset when managing the business's budget. In many cases, businesses may have the option of purchasing the leased vehicle at the end of the lease period, making the leasing option a flexible one, which is ideal for businesses that are growing.

Leasing a vehicle may also be a strategic move for your business if you are keeping an eye on the budget. Monthly payments for leasing a vehicle are generally less expensive than a monthly loan payment for a purchased vehicle. However, you will not have any assets at the end of the term of the lease, as you would if you had purchased the vehicle.

How should a vendor for Vehicle Leasing be selected?

There are a variety of considerations that businesses need to take into account when selecting a vendor for vehicle leasing, including the following:

• Up-Front Costs - Up-front costs are the costs that the business needs to pay for the use of the leased vehicle. These costs will likely include the first month's payment in addition to a security deposit, a down payment (called a capitalized cost reduction), taxes, registration fees, and perhaps additional charges based on your vendor. Be sure to read the terms of the lease prior to signing the lease contract in order to understand what each of these costs means and involves.

• Monthly Payment Costs - You will have to pay a monthly fee for the use of the vehicle. These fees are generally less expensive than the fees that you would pay if you had purchased a vehicle using a loan. In addition to the monthly payment that you will make for the depreciation of the vehicle, you will also have to pay for rent charges, taxes, and additional fees that may apply. Make sure you understand what these additional fees might be before selecting a vendor.

• Early Termination - Many vendors charge an early termination fee if you decide to stop leasing the vehicle before the end of the lease agreement. These termination charges vary by company, so be sure to check out the charges for your particular vendor of choice before signing a contract.

• Mileage - Many leasing vendors limit the amount of mileage you can put onto a leased vehicle per year. The average amount of miles that you can put onto a leased vehicle will vary between 12,000 and 15,000 miles each year. If you wish to have a higher mileage allocation, you may have to pay for the increased number of miles. These additional charges will include costs for wear and tear on the vehicle associated with the increased miles.

• Excessive Wear - Every vehicle will experience normal wear and tear from regular use. However, if your leased vehicle experiences excessive wear and tear, you may have to pay a penalty for the cost of the excessive wear.

• End of Term -Most leases last between two and four years. At the end of the term of the lease, you may have new upfront fees or purchase fees to pay. The new upfront fees will cover the cost to lease another vehicle. The purchase fees will pay for the cost to purchase the leased vehicle or another vehicle. It is important to keep these fees in mind as you enter into a leasing agreement with any company.

As with any major financial decision, there is a beginning, middle and end-of-lease cost that you need to take into consideration. Be sure to compare all of these costs among your top vendors when you are making your final vehicle lease vendor selection.

Additional Resources:

• Federal Reserve Board information on vehicle leasing:

http://www.federalreserve.gov/pubs/leasing

• An overview of the pros and cons to leasing a vehicle:

http://www.investopedia.com/articles/pf/05/042105.asp

• National Vehicle Leasing Association Web site:

http://www.nvla.org