subject: The Many Types Of Car Lease Offered To Businesses [print this page] Businesses have different types of vehicle leasing available to them. First, it is important to understand a car lease. The largest part of the lease cars is depreciation. This is what the lease is based on. Monthly payments are determined by the depreciation. The amount the value of the vehicle is reduced over the lease period is the depreciation.
Here are some interesting facts about depreciation. The payments will be much higher if the vehicle depreciates quickly. This is great for the company that is the lessor. If a car depreciates slowly, the payments are much lower. This is good for the business that is the lessee. It is important to keep in mind that depreciation fluctuates with the economy. Other depreciation variables are the make, model, and year. The depreciation of a vehicle is more rapid in the beginning of its life. It is generally more even after that. Businesses primarily have open-end leases. An open-end lease means the business must pay another charge if the vehicle has depreciated more than expected. A customer can simply walk away at lease end with a closed-end lease. It does not matter if the vehicle has depreciated more or less than anticipated. This type of lease is not generally offered to businesses. It is an important consideration if a leasing company offers businesses a closed-end lease.
Business contract hire is one type of lease businesses is offered. This is a very common type of car leasing. The length of this type of contract can be from 1 to 5 years. The business needs are considered in the details of this contract. Contract hire leases are available with or without a maintenance agreement. There are several advantages to this contract. This will not appear on the balance sheet. It has fixed interest rates. The depreciation risk is nonexistent. This responsibility lies with the leasing company.
A lease purchase is another type of lease. There are some advantages and some disadvantages of a lease purchase. The deposit for this type of car leasing is less. Generally the monthly payments are also lower. The company can invest the money into the business instead. A disadvantage comes at the end of this type of contract. A large balloon payment is incurred at the end of the contract. It is very important to ensure the business will have these funds available at that time. Payment due at lease end is the anticipated future value of the car. The vehicle then becomes the property of the lessee. If the vehicle is used for business purposes only, it may reclaim the VAT.
A finance lease is another type of lease available. A finance lease is a tax effective option for businesses. The company that is the lessor retains ownership of the vehicle. The balance sheet does reflect this type of lease. Interest rates and monthly payments are generally fixed. The significant factor of car and leasing options is to fully understand the choices that are available. This comprehension can be used to decide what is best for the business. A second important factor is to completely understand the lease before signing it. If not, the business can get into financial difficulty. The purpose of leasing vehicles is to move the business forward.
