Fleet-Leasing: Advantages & Disadvantages

Leasing

11. Jul 2021 | By Tim Ruhoff

If a company wants to purchase vehicles for its fleet, there is also the option of leasing the vehicles in addition to purchasing them. In the following, we would like to compare the purchase and leasing of company vehicles, discuss the leasing term as well as the various types of fleet leasing and their advantages and disadvantages.

Accounting

At the end of each financial year, some companies are required to draw up a balance sheet. Assets must always be listed on the owner's balance sheet, as he exercises actual control over the asset. This means that the lessor must list leases on his balance sheet. To do this, he capitalises the leased asset on his balance sheet and depreciates it over its useful life. The lessee can book the leasing fee as an expense on his income statement.

Vehicle leasing procedure

Vehicle leasing works as follows: first, the company chooses its desired vehicle from the dealer. However, the vehicle is then not purchased from the dealer, but a contract is concluded between the lessor and the lessee. The lessor, in turn, purchases the vehicle from the dealer. the vehicle is then handed over from the dealer to the lessee. From the moment the vehicle is handed over to the lessee, the leasing period begins and the leasing instalments are payable to the lessor. The leasing instalments are accordingly high enough for the lessor to cover the purchase price of the vehicle, including the costs of expenses and administration.

Leasing type

The term "leasing" is not clearly defined. Depending on the form of the leasing contracts, there are different types. The main distinction is between finance leasing and operating leasing (operating leasing). Roughly summarised, the two variants differ in that finance leasing is similar in content to the purchase of an asset, while operating leasing can be assigned to a rental. In the following, a leasing overview of the different types will be given.

Finance lease

In the case of finance leasing, a classic leasing contract is concluded. The lessor transfers the vehicle to the lessee, who pays him a monthly fee in return. The lessor remains the owner of the vehicle. The lessee, on the other hand, is merely the owner of the vehicle. In the case of finance leasing, the amount of the leasing fee is calculated in such a way that the value of the vehicle is repaid at the end of the leasing period. If repayment does not occur at the end of the leasing period, a final instalment can be agreed. Since it is not customary to return the vehicle at the end of the finance lease, follow-up financing with a traditional bank loan is also possible. Under a leasing contract, a fixed term (also known as the basic lease) is agreed. During this period, the leasing contract cannot be terminated. The term of the contract is determined on the basis of the normal useful life. The normal useful life.

Finance lease
Finance lease

Operating-Leasing

In addition to finance leasing, there is also operating leasing. This leasing variant is very similar to a rental relationship. Just like with a rental contract, the lessee pays a rental fee and can use the vehicle in return. The lessee can also take the leasing instalments into account again as an expense to reduce tax. In contrast to finance leasing, the leasing period is significantly shorter. The usual contract period is between one and 28 months. The leasing contract can be terminated at any time, subject to the period of notice. The obligations for the lessor also differ significantly from finance leasing. The lessor bears the full investment risk and must assume the costs for maintenance and servicing. Furthermore, the lessor also bears the residual value risk for the vehicle, which is why in the case of operating leasing, the mileage is limited in the contract. Exceeding this would result in additional costs for the lessee.

Operating-Leasing
Operating-Leasing

Full Service Leasing

Full service leasing is a type of operating leasing. The term of the leasing contract is usually three years, but other terms can also be individually agreed. At the end of the leasing period, the lessee decides whether to return the vehicle or to keep it. The highlight of full service leasing is that all costs for the vehicle are included in the leasing rate, so that no additional costs are incurred. In some cases, even the fuel cards for fuel and car wash are covered by the rate. however, it is important to pay close attention in the contract to which services are included and what additional costs might be incurred. The advantage of this leasing option is that the fleet manager no longer has to worry about anything. A large part of the administration is carried out by the lessor. For example, the repair or maintenance of the vehicle is organised by the workshop and a replacement vehicle is provided.

Kilometerleasing

With the kilometre leasing model, a leasing contract is usually concluded for a period of three years. In the contract, the number of kilometres for the vehicle is limited. If the lessee drives more than the contractually agreed kilometres, he must pay for the additional kilometres accordingly. The costs amount to between 10 and 15 cents per kilometre for each additional kilometre in the case of a mid-range car. If the agreed kilometres are not used in full, the lessee is also reimbursed for the difference. In most contracts, a tolerance of up to 2,500 km is specified, within which the number of kilometres can be exceeded or fallen short of without incurring additional costs or being reimbursed for the kilometres not driven. At the end of the leasing period, the lessee is liable for damage and defects to the vehicle that go beyond use due to age and duration.

Residual value leasing

With this method, the residual value of the vehicle is determined at the beginning of the contract. The higher the residual value, the lower the monthly leasing instalments. If an expert estimates the residual value of the vehicle to be higher than contractually agreed, the lessee gets his money back. If, on the other hand, the expert estimates the value of the vehicle to be lower, the lessee has to pay the difference (residual value risk). The residual value is not only determined by the age and use of the vehicle. Changes in the law or driving bans can also influence the residual value. The lessee is advised to look for a buyer who will buy the vehicle at the calculated residual value in good time before the contract expires in order to avoid a cost trap.

Leasing calculator

In order for a company to find out which leasing method is best suited for which vehicle, there are numerous offers of leasing calculators on the web that clearly show the total costs.

Leasing calculator
Leasing calculator

Leasing Software

To keep an overview of the leasing contracts for the individual vehicles in the fleet, a fleet management software is suitable. The fleet management software offers an overview of the costs for each vehicle, including the leasing costs. The software has a reporting tool to monitor the fleet costs. through the transparency, cost drivers can be identified and savings potentials can be easily implemented. In addition, all important dates for the vehicles such as maintenance or main inspection are stored in the software and a timely reminder is sent via e-mail. The reminder about the expiry of the leasing contracts is also sent in a timely manner, so that there is sufficient time to negotiate new contracts in a cost-conscious manner. A fleet management software is intuitive to use and therefore immediately ready for use. The software does not have to be purchased, but there is also the option of leasing software. So the customer does not take any risk and can frequently.

Conclusion

Vehicle leasing is a good alternative for the acquisition of vehicles for a fleet. The different models allow the company to choose the leasing option that best suits its needs. The lessors take over a large part of the administration, so that the lessees are not burdened with additional administrative work. In order to keep track of the different offers, there are leasing calculators on the Internet that calculate the total costs for each type of leasing.