To lease or to buy fleet vehicles, that is the one question most fleet managers have to answer at some point in their careers. Determining the best answer isn’t easy. It’s a complex process that depends on several factors, including budget, fleet size, the number of vehicles required to meet business goals, current and future financial situation, and administrative capabilities.
Lease or Buy? Buy or Lease? : It’s Not A Coin Toss
Both leasing and buying have benefits and risks. On the surface, leasing is typically viewed as less risky than buying. But when you scratch beneath the surface and take into consideration variables such as vehicle lifespan, annual mileage, interest rates on loans, vehicle acquisition costs, maintenance charges, how vehicles are used, and the fact that every fleet has unique needs and goals, the assumption that leasing is the less risky option isn’t necessarily true.
What is true is this - making the best decision for your company is of the utmost importance and can mean the difference between a strong balance sheet and a weak one. What’s also true is that reaching the best decision requires careful analysis.
So here’s some help — a breakdown of the pros and cons of each option. Keep in mind that there’s no right or wrong option, only the best option — the one that best helps you meet your company’s goals.
Leasing – Pros
- New Vehicles — Vehicles outfitted with the latest technology and safety features can mean safer, more confident drivers behind the wheel and less downtime, which is often a problem with older vehicles. Additionally, newer vehicles on the road can have a positive impact on your public image.
- Preserve Capital — Leasing means lower monthly payments than purchasing a vehicle outright, so your company can preserve capital which can be put to use in other business areas.
- Off-the-Balance Sheet Treatment — Buying vehicles is a major capital expense that directly impacts your debt-to-equity ratio. Leasing is not as large an expense and is typically treated off the balance sheet.
- Lower Maintenance Costs — With full-service leasing, maintenance, repairs, support, and breakdown service may be included. If not included, with newer vehicles, at least your maintenance needs should be fewer. Therefore, your maintenance costs should be lower.
- Reduced Administrative Time — Since your company does not own the vehicles, keeping up with tag and license renewal, payment of title retention, and property taxes are the responsibility of the leasing company.
- Greater Access to Vehicles — Many leasing companies can acquire vehicles locally or across the country to suit your business needs. This increased access can lower your overall leasing costs and ensure you get the exact vehicles you want.
Leasing – Cons
- Lease Limitations — With most leases, there are specific limitations, including mileage and wear and tear limits.
- Lower Tax Deductions— Since you don’t own the vehicle, you can’t take advantage of purchase price depreciation less estimated salvage value, interest paid on loans used to acquire the vehicle; vehicle registration, property taxes, and standard mileage on the vehicle.
- No Customization — Most leases don’t allow you to make permanent or temporary alterations to a vehicle.
Buying – Pros
- No Limitations — Vehicles are not subject to mileage, wear and tear limitations, and can be customized with the specialized equipment needed to meet job demands.
- Time Is on Your Side — You can keep a vehicle for any length of time and offload it at any time without penalties.
- Pricing Leverage — If your company purchases vehicles from a specific dealer, you have an advantage when negotiating lower prices for future vehicle purchases.
- Tax Benefits — Unlike leasing, your company can benefit from vehicle depreciation with deductions that can be used to help offset profits.
- Depreciation Control — As the owner of the vehicle, you can sell vehicles individually rather than in bulk as a leasing company typically does. This gives you more control over depreciation costs and more than likely, a lower net depreciation.
Buying – Cons
- Upfront Capital — When buying vehicles, a large amount of upfront capital is required that could be used in other areas.
- Maintenance Costs —Maintenance costs are the full responsibility of the vehicle owner, which is you.
- Administration — Unlike leasing, your company is responsible for the tag, license renewal, title, annual taxes, etc. which can be a tedious and time consuming process.
- Acquisition and Disposal — As with maintenance, this is also your responsibility. While this can be outsourced to a third party to save you time, you’ll be paying for their time.
- Older Vehicles — Older vehicles typically have more maintenance issues than newer vehicles, which could lead to more downtime and higher maintenance costs. Without the latest technology, you also run the risk of having drivers in vehicles that may not be as safe as a newer model.
So, lease or buy? Buy or lease? Hopefully, these pros and cons have provided the clarity and direction you need when tasked with deciding the best option for your business goals.
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