Maximizing the Value of Your Business Car Lease

If you are in the process of weighing up whether to get a business car lease, it can be a confusing time.

What are the terms of a business car lease, the length of the lease, the monthly payment amount, and the residual value, there is a lot to consider.

Then, of course, you need to make sure it aligns with your company’s budget and long-term goals.

Clearly, you will want to adopt the best way of maximizing the value of your business car lease. But what are they?

In this article, we will outline some of the most prudent ways of doing this, so you will benefit most from having one.

What Is a Business Car Lease?

A business car lease is a financing arrangement in which a company rents a vehicle from a leasing company for a specified period of time – typically two to four years.

During the lease, the company makes monthly payments to cover the cost of the vehicle, insurance, and other related expenses. At the end of the lease, the company can either return the vehicle or purchase it for the agreed-upon residual value.

Business car leases are a popular option for companies that need to provide vehicles for their employees but don’t want the expense and maintenance responsibilities of owning the vehicles outright.

With a business car lease, the leasing company is responsible for maintenance and repair costs, and the company can take advantage of tax benefits and write off lease payments as a business expense.

What Vehicles Are Covered?

In Australia, a business car lease can cover a wide range of vehicles, including sedans, hatchbacks, SUVs, vans, and trucks. The specific vehicles available for a business car lease will depend on the leasing company and the terms of the lease agreement.

Some business car leasing companies may specialize in a certain type of vehicle, such as luxury or eco-friendly vehicles, while others may offer a wider range of options to meet the diverse needs of businesses.

When selecting a vehicle for a business car lease, it’s important to consider the specific needs of the business, such as the type of driving, the number of passengers, and the size of the vehicle required for equipment or cargo.

What Are the Typical Terms of a Business Car Lease?

When it comes to a business car lease, this article from Westpac outlines the two main options you have.

The terms of a business car lease can vary depending on the leasing company and the specific arrangement, but they typically involve a few factors. These include the length of the lease and the monthly amount your company must pay to cover the cost of the vehicle, insurance, and other related expenses.

It also usually takes into account the estimated or ‘residual value’ of the vehicle at the end of the lease and is used to determine how much you need to pay in the monthly payment amount.

Other things that are considered include the cost of maintenance and repairs, whether there is a mileage restriction, and the level of insurance required.

Most business car leases also have factored into them the ability to end a lease before the original conclusion of the term – usually with a fee charged for doing so.

End-of-lease options would be included, too, such as the option to purchase the vehicle for the residual value, return it to the leasing company, or enter into a new lease agreement for a different vehicle.

How Can I Maximize the Value of a Business Car Lease?

Maximizing the value of a business car lease involves making smart decisions and carefully considering the terms of the lease agreement.

To do this, there are a few things you should take into account. Firstly, it is important to choose the right vehicle. Consider the needs of the business and select a vehicle that is appropriate for the intended use while also being cost-effective.

It is also worth reviewing the residual value, which is a key component of the monthly payment. In doing this, you will be able to better understand the estimate of how much it should be, thus ensuring it’s realistic and favorable for your business.

As with anything in business, you should be prepared to negotiate the terms. This includes everything from the monthly payment and mileage restriction to the end-of-lease options.

The mileage restriction is particularly important because if the vehicle is driven frequently, you should consider a lease with a higher mileage restriction. Alternatively, you might want to negotiate a more favorable rate for exceeding the limit.

To avoid any fees for excess wear and tear, you should plan how you will return the vehicle in good condition. This includes planning for any maintenance and repairs that might be required and determining the potential impact of them on the monthly payment.

Lastly, you should consider the tax benefits, of which there are usually quite a few.

By carefully considering these factors, it will go a long way to ensuring that your business car lease is a cost-effective and valuable investment for your company.

What Are the Tax Implications of Getting a Business Car Lease?

Talking of tax implications, in Australia, they can vary depending on the specific terms of the lease agreement and the use of the vehicle. However, generally, they include the following:

Depreciation: The cost of the vehicle can be claimed as a tax deduction through depreciation based on the effective life of the asset as determined by the Australian Taxation Office (ATO).

Interest: The interest on the lease payments may be tax deductible, subject to the specific terms of the lease agreement and the use of the vehicle.

GST: If the vehicle is used for business purposes, the business may be entitled to claim a GST credit for the portion of the lease payments that relate to the GST component.

Fringe benefits tax (FBT): If the vehicle is made available for the private use of an employee, the business may be liable for FBT.

Record keeping: It’s important to keep accurate records of the use of the vehicle, including any private use, to support the tax claims and ensure compliance with the ATO regulations.

To find out more about the tax benefits of a business car lease, it is worth talking to your accountant or professional financial advisor.

Pros

There are a number of pros to getting a business car lease. These include the following:

• • Lower Upfront Cost: Leasing a car for your business often requires less upfront cost compared to purchasing a vehicle outright.
  • Predictable Monthly Expense: Leasing allows you to have a fixed monthly payment, which can make budgeting and cash flow forecasting easier for your business.
  • Tax Benefits: Depending on your tax situation, leasing a car for business purposes may provide a tax advantage, as lease payments are tax deductible.
  • Access to Latest Vehicles: Leasing gives your business the ability to regularly upgrade to newer, more advanced vehicles without the hassle of selling the old ones.
  • Reduced Maintenance Costs: Many leases come with a maintenance package, which covers regular upkeep and can save your business money in the long run.
  • Flexibility: Leasing gives you the flexibility to change vehicles or terminate the lease early if your business needs change.

Cons

There are also a few cons to getting a business car lease, including:

• • • Limited Customisation: Leased vehicles typically cannot be modified or customized, as the vehicle must be returned in good condition.
    • Mileage Restrictions: Many leases have strict mileage restrictions, and excess mileage fees can be costly.
    • Lack of Ownership: When you lease a vehicle, you do not own it and must return it at the end of the lease term.
    • Limited Use: Leases may limit the use of the vehicle for personal purposes, which can be inconvenient for business owners who use their vehicles for both business and personal needs.
    • Inflexible Terms: Leases have fixed terms, and the early termination can result in costly penalties.
    • Hidden Costs: Leases may include additional fees, such as maintenance and insurance costs, that can add up over time.
    • Limited Equity: When you lease a vehicle, you are not building equity as you would if you were purchasing it.

Conclusion

All things considered, a business car lease can be a very good way of helping your business achieve its operational and sales, and marketing goals.

If you’re thinking of getting a business car lease, there are several important factors to consider as outlined in this article.

However, as with everything in the corporate world, the decision to get a car business lease ultimately depends on your specific business needs and financial situation.