Setting up vehicle leasing for a business
[vc_empty_space height=”18px”]If you have a business, then the chances are you need a vehicle. Or perhaps you need a fleet of vehicles.
So how do you go about setting up a vehicle lease for a business?
At OSV, we work with businesses every day, and we help them get started on their leasing journey all the time, so in this article, we’re going to go over how to set up a vehicle lease for a business.
Setting up vehicle leasing for a business
Firstly, what is a vehicle lease?
In this instance, a vehicle lease is where a business or a corporation have a vehicle, or a fleet of vehicles, for a set period of time while making monthly payments. What happens at the end of the contract depends on what contract you choose, but more on that later.
Essentially though, when you lease a vehicle you do not own it. If you want to buy your vehicle at the end of the contract then we recommend you look at a Hire Purchase, which is a purchase scheme in which you make monthly payments and own the vehicle at the end.
When you get a vehicle lease, you are essentially renting the car. You don’t own it.
So how do you go about setting up a vehicle lease for business?
1. Choose your vehicle/vehicles
We recommend being a little bit flexible and choosing two or three makes or models that you would be happy with. That way when you start to look at deals you can compare them and choose which deal is best for you.
2. Decide how long you want the contract for
Typically, lease contracts last for three years. But, they can last for between one and five years so there is a degree of flexibility.
The shorter your lease contract, the quicker you will have to organise getting a new vehicle or a new fleet. You will also have to consider that you will have to put down another initial payment, so you will have to budget for that quicker than you might like.That said, a common misconception with leasing is that the longer the contract, the cheaper it is going to be but this is not always the case. When you lease, the cost is dependent on the depreciation. You take the purchase price and the residual value (how much the vehicle is going to be worth at the end of the contract) and work out the difference. You then divide that total by how many months you have the contract. That will give you how much you will pay monthly.[vc_single_image image=”58030″ img_size=”article-image”]Therefore, the longer you have the vehicle, the higher the mileage and the older the vehicle which means it could depreciate more. This means that it could end up costing you more. This is not always the case, however, but it is something that you should consider before you make a decision.
3. Choose your contract
There are two options available for you; Contract Hire and Finance Lease.
Contract Hire is the most popular form of leasing, and is what people often refer to when they are talking about leasing.
With Contract Hire, you have your vehicle or vehicles for a set period of time, while making fixed monthly payments. You also have a fixed mileage and are contractually obliged to keep the vehicle in a good condition. This condition is in line with the BVRLA Fair Wear and Tear Guide and is the industry standard for all lease vehicles upon their return.
Once the contract is up, you hand the vehicle or the fleet of vehicles back with nothing more to pay, subject to mileage and condition restrictions. If you do choose a Contract Hire, then you will have to think about how you are going to keep track of the mileage and the condition of the vehicles. Some require their employees to submit their mileage at certain intervals. This way you can keep track of the mileage for each of the vehicles and won’t get any unpleasant surprises when the vehicles are returned.
You can read more about Contract Hire here or watch the video below.[vc_video link=”https://www.youtube.com/watch?v=sZTKPhA-th8&t=4s”]Finance Lease is more suited to vans, as there are no mileage or condition restrictions. However, you can also get a car on a Finance Lease if you wish.
At the beginning of a Finance Lease, you set a balloon payment. This is a slightly larger payment at the end of the contract, and depends on how much you are putting down initially and how much you want your monthly payments to be.
At the end of the contract, you will have to find a third party buyer to buy the vehicle or fleet of vehicles off you. This is to cover the remaining balloon payment. If you sell the vehicle(s) for more than the balloon payment then you get to keep the equity, but if you sell it for less then you will have to make up the difference.
You can read more about Finance Lease here or watch the video below.
4. Dealership vs. Vehicle Broker; Which is Better?
Now you have decided which vehicle you want, how long you want it for and what contract you are going to go for, it’s now time to talk to someone about making the whole thing happen. We always recommend that you yourself look for the vehicles, instead of sending your team out to do their shopping. This can be time consuming, complicated and they could be getting on with their jobs as opposed to looking for the best car deals they can. So we always recommend that you do this rather than sending your employees off to look for themselves.[vc_single_image image=”45764″ img_size=”article-image”]Going through a dealership is the traditional way of getting a vehicle, whether you are buying or leasing. If you know which brand you want to go for then a dealership is a viable option.
However, you are unlikely to get an unbiased opinion because the dealership is tied to the one brand. They also might not have access to as many finance houses, meaning that you might not get the best deal for you. That said, they may be able to access discounts that vehicle brokers do not because they are dealerships and therefore have special relationships with the brands and their associate finance houses.Many vehicle brokers are independent, which means that you are likely to get an unbiased opinion as they are not tied to one brand. Experienced vehicle brokers also have access to multiple finance houses, therefore are likely to get you a very good deal. Vehicle brokers are also practiced in working with those with bad credit, and have access to finance houses who work with those with bad credit. However, you have to ensure that the vehicle broker you are going through is reputable, and have the experience and the accreditations to give you the customer service you deserve and also the best deal for you.
5. Consider whether you need a maintenance agreement
You may want to include a maintenance package on your vehicle lease. A maintenance agreement is a small additional cost that covers all servicing throughout the duration of the contract. It essentially staggers the cost for the duration of the contract instead of paying out all the money in one hit.
6. Go through the approval process
When you lease a car, you will have to get approved for finance. The finance house need to know that you are going to make the monthly payments, and to do this they will look at your credit score.
As you are a business, they will check the businesses credits core. You should also be prepared to show them the following if they ask;
- Proof of address and ID of the Director/Directors
- Bank statements showing a positive net worth
- Ideally from the past three months
- Opening balance sheet if available
If your business has poor credit, then they will search the Director’s credit history. If the Director has a strong credit score then the chances are they will ask for a Director’s Guarantee. This is essentially where the Director will promise to personally take on the payments should the business fail to make them.
7. Sign the documents
Once you have been approved, all you have to do now is sign the documents and wait for your vehicle to be delivered.
8. Decide what you are going to do at the end of the contract
While you have your vehicle or your fleet of vehicles, you will have to think about what you want to do at the end of the contract.
Do you want to simply return your vehicles, or would you like to renew your lease contract or extend it?
If you have a Finance Lease, then you will have to decide whether you want to sell the vehicle on or pay a peppercorn rental and keep the vehicle for another year.
You will also want to start looking at new vehicles if you have decided that you do want to return your lease vehicle. What have you enjoyed about your current vehicle or current fleet? Has the mileage been enough? Would you go for a longer or shorter contract, or was the term just right?