Four common leasing myths - debunked
Contract hire leasing is one of the most popular ways for businesses to procure vehicles. Nevertheless, a slew of myths concerning leasing persists, giving rise to potential confusion and misunderstandings.
Here, we debunk four of the most common misconceptions helping to ensure your organisation is well-informed.
Myth 1: Lease contracts cannot be changed or renegotiated
When taking out a lease contract, there are two parameters to consider – how many years the vehicle is needed and the mileage it will cover.
But what if the mileage ends up being more than what is stipulated in the contract?
Typically, businesses will be charged an excess mileage fee should a vehicle exceed the number of miles/km specified in their contract. Most leasing companies, however, will look to update the contract in the first year, based on the vehicle’s utilisation.
Many fleets will also look to extend their lease cycles, particularly in recent times when supply chain disruption has led to restricted vehicle availability.
There has been a reluctance among some leasing companies to extend for protracted periods, with rising used car values making it more attractive for them to take back the vehicle at the end of the contract,
Extensions are still possible, but fleet should be aware that higher prices may result.
If there is a possibility of you wanting to end your lease contract early, it may be worth considering a short-term, mid-term or flexible lease to ensure flexibility and to avoid having to pay expensive termination fees.
Myth 2: Leasing is more expensive than outright purchase
It is a common misconception that it is cheaper to purchase a vehicle outright than to lease.
There are a number of advantages and disadvantages to both options and fleets must look at the wider picture before making a decision.
If cashflow is an issue, for example, leasing may be a more attractive option as there is a lower initial payment, as well as a predictable monthly expense that will often include costs, such as tyres, insurance and tax. With purchased vehicles, businesses will have fund to these supplementary expenses themselves.
What’s more, if you purchase your vehicles outright, additional time resources will be needed to manage the vehicles and sell them on when ready. If employees don’t have capacity to take on this task, the additional expense of a fleet department may be necessary. With leased vehicles, an outsourced fleet management company can deal with everything on your behalf.
When leasing a vehicle, you are likely to be running one of the latest, most fuel-efficient models. Not only will you benefit from better fuel economy, but because they are relatively new, they are likely to spend less time in the garage for repairs and maintenance.
By contrast, purchasing a vehicle will often mean keeping it for a longer period, resulting in higher SMR bills. There are also no mileage limitations, so no charges for exceeding an allowance.
Ultimately, there are a number of cost variables at play. Businesses should consider their specific needs to determine which approach is more cost-effective
Myth 3: You can’t modify a lease vehicle
Some organisations will need to modify their vehicles to meet their business requirements, such as adding racking, shelving or a power supply. But is this possible with a lease vehicle?
In short, yes. However, you must inform your leasing company before carrying out the modifications.
Most lenders will allow for modifications as long as they don’t permanently damage the vehicle. In some cases, they may have agreements in place with specialist companies and request that the work is done via them.
When the vehicle is handed back to the leasing company, they may ask for it to be remodified to its original state, or it may be kept as it as is so it can be used by another company for the same purpose
Myth 4: Leasing results in a lot of hidden charges
When taking out a leasing contract, avoid complacency – go over the details with a fine toothcomb.
Look at what’s included and what isn’t. If terms aren’t clear, ask the leasing company to clarify them. Make sure what you can and cannot be charged for is written in black and white to avoid unexpected costs.
Typical customer complaints are usually about end of contract charges, but in most cases, costs, such as excess mileage, are justified as they are included in the contract.
Disputes can also arise around a vehicle’s condition. Most leasing companies will have a standard wear and tear policy and understand that vehicles aren’t going to be in pristine condition after years of use. But if there are damages that need extensive repair work, you may have to pay for these.
Often damages will come from poor driver behaviour so be sure to educate your drivers and provide training to prevent additional end of contract costs.
For total transparency, consider a multi-bid approach – using multiple suppliers rather a bundled, sole-supply arrangement. By managing contracts directly with service suppliers, fleets can have more cost visibility and flexibility.
What works for you
Whichever vehicle funding route you decide upon, you will need to have the requisite resources and expertise to effectively manage your fleet procurement.
An outsourced fleet management company, like TraXall International, can review the market and utilise its strong industry relationships to ensure you get the very best deals.