How to Lease a Corporate Car
A corporate car lease is a form of vehicle financing for business use. The business entity pays to use the vehicle for a number of years then returns it to the leasing company.
Car Loan Vs Car Lease
A car loan lets you pay for the ownership of the car. The length of payment time depends on the terms of your loan. You may need to pledge your car as collateral, as well as provide a down payment to secure the loan. Your vehicle can be taken by the lender if you cannot repay the loan on the agreed time frame. Alternatively, you can get an unsecured car loan, which doesn’t require your car as collateral but has a significantly high interest rate and down payment requirement.
Meanwhile, in a car lease, you pay for the usage of the car. The arrangement is similar to a car rental albeit the time frame is longer at around three to five years. When your lease contract expires, you either need to return the car to the leasing company or purchase it for its residual value.
5 Steps to Lease a Vehicle for Business
The process of leasing a corporate vehicle is fairly similar to leasing one as an individual.
1. Shop around for car lease offers and compare deals.
Do not sign with the first vehicle leasing company that makes you an offer. Instead, check out the car lease plans of other lessors or seek help from an independent broker. Once you have several deals to choose from, get the car lease agreement that works best within your budget and business needs.
Look for leasing companies that specialise in commercial vehicles if you can. These lessors have access to various leasing programs for businesses that others do not have. They also have a team of dedicated professionals who are specifically authorised to work with business customers. They can make the car leasing process much easier and faster for you.
2. Decide which type of car lease to get.
You can choose between a close-end and open-end leases.
- In a closed-end lease, you are not obliged to buy the car at the end of the lease period. However, you must compensate the leasing company if you return the car in its worse shape. You will also be charged extra fees if you drive too many miles in a year. Choose this lease if don't really need to drive long miles with the vehicle.
- In an open-end lease, you will pay the difference between how much the vehicle fetches at resale and its expected value based on how long you had it. However, if the sale exceeds the expected value, you get a rebate. Choose this type of lease if you do not want mileage limitations and charges for damage than ordinary wear and tear.
After shopping around for car lease plans and choosing the right one for your business, complete a lease application form. You will need to provide your personal and business information for this.
3. Present your business's credit report and financial documents.
When you negotiate for your car lease terms, bring the latest copies of your business's credit report, balance sheet and any other documents that can prove your good creditworthiness. The leasing company will assess your business’s debt management history, cash flow, revenue, and other factors that impact your capacity for making on-time payments.
4. Prepare to personally guarantee the lease.
If your business does not have a good credit profile to qualify for a lease payment plan, you may need to personally guarantee the lease. You can still lease the car through your business profile but you will also be personally responsible if you can’t fulfill the payment agreement. Any delinquent payments will reflect on your credit profile.
A personal guarantee on a car lease may not be ideal but if you are a new or unestablished business, it’s often your only option. It can also help you build a good credit history if you make on-time payments. Thus, if you need to personally guarantee the lease, negotiate with the lessor for the best terms.
5. Provide a down payment.
Give a down payment that is less than what you would pay for when buying the car. However, if you want to lower your overall monthly lease payments, provide a large down payment for your lease.
6 Benefits of Car Lease for Business
If your business only needs a car for a limited period of time, a corporate car lease may be the better option than getting a car loan because it provides several advantages.
1. You can drive the latest car models.
Driving a new car promotes your business's image and impresses your clients.
There are plenty of new cars to choose from, with lots of car leasing companies vying for your business.
Also, once your leasing period is over, you can get a new lease and with it, another new car to drive.
And since the monthly payments of a car lease are cheaper than loan repayments, you can might afford a luxury vehicle to lease.
Before making any deal, take the time to shop for the best car lease deals on the latest car models. Some companies even offer a price matching service.
2. You will pay less for the monthly leasing than loan payments.
A car lease payment is more affordable than a loan repayment. Generally, the monthly lease amount payable is between 30% to 60% of the value of the car, which is a lot cheaper than financing a new vehicle.
This is especially advantageous if you’re just starting out on your business and its profit is minimal. You can have a car, make low lease payments and have more funds to cover other business expenses.
3. You won't pay the car maintenance fees.
Many leasing companies provide free car maintenance during the lease period. Do not hesitate to ask and negotiate for this perk when shopping for car lease plans.
4. You will have tax benefits.
If you lease your car through a novated lease where your employer pays for your car from your pre-tax salary, you will have a lower tax rate because your payments are coming from your pre-tax income.
5. You will not pay any major upfront cost.
A business vehicle lease usually has little to no down payment, which helps your business conserve cash flow and increase its profit margins.
6. You will have free GAP coverage.
Most car leasing companies offer free GAP protection, which covers for cars that are stolen or involved in an accident. This is especially helpful when your car insurance provider refuses to cover all the incurred loss.
Positive Lending Solutions can help you get approved for a car lease or car financing. Use our Novated Lease Calculator so you have some idea of what your loan repayments might be or fill out the 30-second Quick Quote form.