Leasing a car for business purposes has boomed in popularity. Millennial car buyers, in particular, are leasing more over the past five years to afford an appropriate car at a much lower cost. And with good reason too. Business car leasing gives drivers a big advantage – access to a reliable car and a financially viable solution to get something that suits their needs without blowing the budget or dealing with the hassle of ownership. It’s a package that provides great benefits for both the employer and employee.
This form of business car leasing enables you to get the vehicle, or a fleet of vehicles, that’ll best get your business on the road. Unlike purchasing a car outright or through a bank loan, you don’t need to put down a deposit, which frees up extra cash for other essential expenses. Once the car lease is up, there will be an opportunity to make changes to the lease by extending the term. Thinking of leasing a car for business purposes or updating your current fleet? Here are some key points to know beforehand:
1. You will Need to Keep a Log Book
You will be required to keep a log book for the car for the first few months to keep track of personal usage. This will ensure the vehicle is being used predominately for businesses purposes. If the car is a tool of trade or work ute with a carrying capacity of over 1 tonne, there is no need to keep a log book if personal use is incidental.
2. Assets and Liability Form Part of Your Balance Sheet
When leasing a car through the business, the value of the asset is capitalised to the balance sheet and the liability for future lease repayments is also raised to the balance sheet as a liability. For the business, this creates a secured liability on the balance sheet. There is no impact for the employee and this is restricted to pure tool of trade vehicles. To remove this from the balance sheet, employers could use an operating lease, which then becomes a rental over the term of the lease.
3. The Car You Purchase Matters
Choosing the right type of car under a business lease is important. It needs to fit with both your business and personal needs and act as a reliable asset. The usage of the car is a vital criterion too. Fleet managers can assist in the process by managing the vehicle’s specs and recommending makes and models that will suit your needs and the environment. Enabling a fleet manager to choose the car with you also means you can get assistance with ensuring it meets with engineering compliances.
4. Maintaining Your Asset
Cars aren’t cheap to purchase – especially when it’s a desired make and model required for business. Maintenance and service costs are quick to add up and it can be easy to lose track of these finances. Utilising the services of a fleet manager will help to reduce the costs of running the car and extend its lifespan. This is because required servicing will be scheduled and maintenance thoroughly managed to stay on top of everything.
To maximise the usage and make the most of the capital asset, it’s worthwhile having the car tracked too. This would be an additional cost but utilises telematics (long distance transmission) to ensure the car is on site and being used as intended. Having tracking on the car will also help to keep maintenance and running costs to a minimum.
5. Using a Fleet Manager Reduces Costs
If you’re looking to refresh your current fleet of business cars, or you’re needing to purchase multiple cars to lease, it’s imperative to use a fleet manager to reduce the costs of buying each car. Generally, the motor trade will negotiate when multiple vehicles are being bought at once. In these situations, a fleet manager has aggregation capability to get the most bang for your buck.
Using a fleet manager doesn’t just implement smarter vehicle selection and maintenance tracking, but also helps to reduce fuel consumption and implement better driving habits too. At Easifleet, we make leasing cars for business purposes easy by reducing as many of the costs associated with buying a new car. We aim to choose vehicles based on whole-life costs and encourage fuel efficient driving for all staff. Accident management, fleet tips, smartly chosen fuel card providers and reduced fleet journeys are all key areas we can help with to reduce long-term expenses.
6. Residual Value vs. Resale Values
Look at the residual value of the car at its end of life and determine how that relates to resale values. So you’re not left out of pocket, you want to match the resale value to any debt owing at the end of the lease term. The residual value, also known as the balloon payment, is the amount a business expects to sell an asset for at the end of its useful life. In this case, the asset is the car. The value outlines the function of the amount and rate of depreciation on the car and can be affected by monthly payments.
Almost all vehicles’ residual value will depreciate over time, but some much less than others. In many cases, the higher the residual value, the more the car is worth. This can make it easier to sell or trade in at the end of the lease.
Every business car lease has a number of miles that the user is allowed to travel each year. This allowance is agreed upon in advance, usually about 10,000 miles (16,000+ kilometres). Any mileage used over the agreed amount is charged at and excess mileage rate. If you believe more will be used, it’s worth to pay extra for additional mileage or you’ll be stuck with this cost at the end of the lease. This surcharge of extra mileage variers from car to car so check with your fleet manager for specific models. To avoid any issues, it’s best to average out to your selected miles per year.
To find out more about how Easifleet can assist with your business car leasing, contact one of our staff today.