Tips for Leasing a Commercial Vehicle
Owning your own business is a rewarding endeavor that allows many dedicated individuals to pursue their life’s passions; but as many small business owners know, it can also be accompanied with much financial stress and a shortage of initial capital. For many small business owners, leasing a commercial vehicle is an affordable option for building a fleet of cargo vans and delivery trucks required to deliver products and services to the consumer. According to recent studies, almost a fourth of all vehicles are leased as opposed to purchased. Making the decision to lease a commercial van can be an easy one, but actually completing the process can be a challenge. There are so many financial details and processes to be aware of that leasing may seem overwhelming. However, don’t worry, our full guide to leasing a commercial van will teach you everything you need to know about getting a good deal.
Clearing up Myths about Leasing
Leasing is not the same as renting. To those who know little about the leasing process, it might sound like leasing a car is much like renting a home, but that’s not true. Unlike renting, the responsibility of vehicle maintenance and repairs fall entirely on the lessee. Cars must be returned in the same condition they were leased in, which means it is up to the leaser to see that the vehicle is well maintained. When leasing a van you are dealing with a leasing company. Although all initial payment negotiations are made through a car dealer, they are actually acting on behalf of a leasing company. When making monthly payments you will deal directly with the leasing company. These leasing companies are usually subsidiaries of the car manufacturers, such as Nissan Motor Acceptance Corp. or Toyota Financial Services. Leasing is not a great option for everyone. While leasing has its many advantages, this financial setup is not for everyone. Leasing a commercial vehicle is ideal for business owners who are looking to obtain a new vehicle every two to four years, are gentle drivers and who drive the standard amount of miles.
How Leasing Works
Price of the Vehicle The first steps of leasing a vehicle are much like those of purchasing a car, however when leasing a car this is where aggressive negotiations should be made. Some dealers will try and convince you price on vehicle for lease is always the full-ticket price, but this is not true the price can go low as you can argue it. The price of the vehicle is what the leasing company uses to determine your monthly payments so be sure to haggle. Initial Down Payment One of the advantages to leasing a car is that initial down payments are optional. When purchasing a car most buyers are required to pay 20% of the full vehicle price upfront, but when leasing all that is due when you sign the contract is the first month’s payment. However, lessees do have the option to make a larger down payment to decrease future monthly payments, known as a Capitalized Cost Reduction. Monthly Payments Monthly payments on a lease are usually calculated based upon a 36 month lease. In some cases a 40 month lease, or 60 month lease is available, however these contracts will incur higher interest rates. Sales tax is calculated based only on monthly payments, instead of the vehicle’s full price. Trade In Value The residual value of a leased vehicle is negotiated in the lease contract, and while a higher residual value on the vehicle can lower monthly payments, it can also make it tougher to sell of the lease at the end, or buy out the remaining cost of the vehicle.
Benefits of Leasing a Commercial Van
- Leases can be deducted as a tax credit
- You can afford newer vehicles
- Mile limits
- There’s little flexibility with time limits
The government allows for nearly all business owners to deduct monthly lease payments as tax deduction. To deduct monthly payments you must use the vehicle strictly for business purposes, or else you can only deduct a portion of the payment. Actual deductions are calculated based upon either the actual expense of the car or the standard mileage rate. For more information on tax deductions for lessees check out the IRS’s website.
Purchasing a new vehicle is very expensive and for many vehicles owners purchasing a used vehicle is the only option. However, when you lease a vehicle you are only paying for a portion of the vehicle, making it easier to afford the brand new cargo vans and delivery trucks. This guarantees the car is in great condition and is always under warranty, which over time saves a large amount of money on maintenance costs.
Cons of Leasing
To guarantee the car is retuned in good condition leased vehicles come with a yearly mile limit, usually somewhere between 10,000 and 12,000 miles. If lessees go above the mile limit there are hefty fees involved, up to $0.25 per mile over. However, when signing the initial contract lessees can negotiate higher annual mile allotments, or purchase additional miles throughout the lease at a discounted price.
There are few options on the lifetime of a lease, with most leases lasting 36 months. To discourage lessees from backing out of leases early the early termination fees are steep. However, most leasing companies allow the transfer of existing leases to another person. This is the best option for those looking to get out of a lease early as there are no fees involved and it does not affect the lessee’s credit score. However, the correct processes as set forth by the leasing company must be followed to avoid legal complications.
Resources for Leasing a Vehicle
Tips for Financing a Car lease
Commercial Vehicle Leasing Pros and Cons
Leasing information for Fleet Vehicle Operators
Tips for Consumers when Leasing a Car
Car Lease Guide