What Is Business Car Leasing?

Business car leasing is a type of financing similar to renting a vehicle. You do not own the vehicle but use the vehicle as if you do, only pay for usage and taxed on your payments only. When a business leases a car they are referred to as the lessee and the financing company is the leaser. Both the lessee and leaser names are on the vehicle insurance. In addition, the leaser name is also on the vehicle title. This is why the lessee only pays taxes on the monthly lease payments rather than on the whole purchase price of the vehicle. It’s as if the lessee is renting the car and only paying taxes on the amount of time the vehicle is used. In contrast, when you purchase a vehicle using traditional financing you own the vehicle, pay for it in its entirety over the financing term and get taxed on the full vehicle purchase price.

One of the purposes of business car leasing is to allow a business to purchase a more expensive vehicle at a lower monthly payment. This is done by paying for usage over a specific term. For businesses another purpose of car leasing is to classify the vehicle payment as an expense so it can be tax deductible. The same is true for associated vehicle related expenses such as insurance, gas, maintenance and repairs.

At the completion of a car lease the lessee has a couple of options. They can either return or buyout the vehicle. If a lessee returns a vehicle the dealer will sell the vehicle used and will generally earn a profit on the sale. Meanwhile the buyout amount or residual value of the vehicle is pre-determined at the beginning of the lease. This amount can vary from one manufacturer to another but is generally around 50-60% of the total vehicle price.

One of the restrictive parts about vehicle leases is that lessee’s cannot simply sell the car to someone else. They must first buyout the vehicle from the leasing company prior to selling it. Buying a lease out early generally results in some penalties versus paying out a traditional vehicle finance. Alternatively, there are various sites which cater to lessees who wish to get rid of their car leases by swapping them or transferring to someone else. This usually allows businesses to avoid buying out a lease or waiting until the end of the term to return the vehicle.

Leasing like any other type of financing is based on an approval process tied closely to your credit score. With a higher credit score you generally qualify for leases and better rates. By contrast, a poor credit rating can result in your lease application being denied and perhaps the availability of only sub-prime rates. For businesses looking to get any type of financing and leasing most financial institutions require that you have been in business for at least two years so they can verify your earnings for those two years. This may vary from country to country and from one leasing company to another but it is something to keep in mind when looking for business lease financing. You can check your credit scores at one of the following credit bureaus.

www.transunion.ca (.com for US)

www.equifax.ca (.com for US).

5 Smart Tips on Leasing Your Next Car

Consumers shopping for a new car have three options for making a deal. The first option involves a cash payment with no financing involved. The second option is automotive financing, where the consumer puts money down on a new car and finances the rest. The third option is to lease a car, basically renting it for a term and then returning it at the end of the lease.

Few people can afford to pay cash for a car, leaving the other two options as possibilities. While financing can help you to eventually own your car, leasing can help you get a new car every few years and avoid the hassle and expense of major repairs down the line.

Let’s take a look at several smart tips on leasing your next car:

1. Consider your purchase. What type of new vehicle do you want? When leasing, you need to identify the vehicle that is right for you including the make/model, trim level and other amenities. Choose the car you want and outfit it the way you want before moving to the next step. Yes, you should test drive your vehicle too to make sure that it is the right car for you.

2. Select a term. How long do you want to lease your next car? Although it is possible to get out from underneath a lease, you’ll pay transfer costs to a new owner, that is if you can find one. Choose a lease term that suits you, opting for a shorter 24-month lease if you expect your transportation needs will change or a 36-month or longer lease if you expect your needs will remain the same. The longer the lease, the lower the monthly payment… usually.

3. Know your mileage limits. Leasees often get hammered at the end of the lease term because they did not know their mileage and other limitations. Typically, you’ll be able to drive 1,000 miles per month or 39,000 miles for a 39-month lease. Go over that number and you could be charged 20 cents per mile, a payment you’ll need to make at the end of the lease term.

4. Consider wear and tear. When leasing, you need to take care of the usual maintenance unless a maintenance program is included with your lease. Change the oil at regular intervals, rotate tires, replace the air filter and handle other end of lease term matters. If you return the vehicle with obvious signs of wear and tear, expect to accessed a fee for maintenance. You may end up holding a bill for hundreds of dollars in repairs, maintenance and touch ups inside and out.

5. When to buy. Some people contend that there are better times to lease a car than others. Typically, that time can appear during the last four months of the calendar year as manufacturers seek to move older product off of dealer lots to free up space for new models. Still, lease deals can be had throughout the year, therefore keep your eyes peeled for bargains. Also, you can negotiate your lease too, reducing your monthly payment and your down payment or your capitalized cost rate.

Final Thoughts

When leasing a car, you’ll typically lease through the manufacturer’s financing arm. Negotiate the best deal and if you later decide you don’t want the car, there are services such as Swapalease.com and LeaseTrader.com that can help you get out from underneath a lease. You can also use those services to test leasing, taking over lease payments yourself to find out if a particular car and leasing is right for you.