It’s no secret that fleet managers are constantly searching for ways to optimize efficiency and reduce costs, and one of the easiest ways to do so is through a fleet leasing program, like one offered by Merchants Fleet.
But there’s more to a fleet leasing program than meets the eye. You’ll need to weigh the pros and cons of the different types of leases and whether leasing versus owning makes sense financially. Plus, if you decide to lease, you’ll need to find the right commercial vehicle leasing and financing partner to make it all happen.
What are the Different Types of Fleet Leases?
The first step is determining what type of lease is right for your business. There are several options, all of which have different benefits, challenges, and options.
Open-ended leases provide complete leasing structure flexibility. Vehicles are set to an amortization term based on annual mileage driven and best business practice recommendations.
This type of lease provides you with all the benefits of leasing with a plan that’s as close to vehicle ownership as possible. There are no mileage restrictions or penalties, and you can return the vehicle at any point during the lease after the minimum period has passed.
It’s important to note that the customer is responsible for the vehicle’s book value under the Terminal Rental Adjustment Clause (TRAC), which is “an arrangement featuring a final rental adjustment on the lease which occurs after the vehicle is removed from service and sold.”
Close-ended leases have set terms, mileage, and vehicle turn-in dates. You are locked into an agreement with specifications, which means you will be penalized if you turn in the vehicle too early or exceed the mileage limit.
While close-ended leases are fixed, they can be more cost-effective than an open-ended lease if your fleet’s mileage is low and predictable. This type of lease is also beneficial as there is no risk to the client.
Short-Term Flexible Leases
Short-term flexible leases offer terms for as little as three months up to one year. These leases are for instances where neither a daily rental service nor a traditional lease makes sense. When occasions like this arise, you need something that fits between the two, and that’s where a short-term lease can help.
Fleets that have seasonality needs find this lease very beneficial for their operations.
Value Leasing (Own to Lease)
Value leasing allows you to lease pre-owned vehicles, which means you can save money using pre-owned, low-mileage options. In most cases, the vehicles are still protected by the original manufacturer’s warranty.
Sale & Leaseback Programs
Sale and leaseback programs allow a fleet to free up cash flow while streamlining operations by converting your owned vehicles to leases. Fleets can also use these programs to restructure and consolidate their leases with a single provider.
Top Benefits of Fleet Leasing
There are many reasons to consider leasing fleet vehicles, including affordable monthly payments and the option to find a leasing structure that fits your business needs and budget. Leasing also gives you access to various makes and models with the ability to upgrade to newer vehicles as needed.
The right type of fleet leasing should also come with a dedicated management team, which will reduce your administrative responsibilities, serve as a single-source provider, and allow you to focus on what matters most — your business.
If you’re considering electric vehicles, a leasing company offering EVs is an excellent way to see if this type of sustainable transportation fits your business. You may also be able to participate in a pilot program, which is a trial period for fleet managers to discover how to incorporate EVs.
Additionally, choose a fleet partner with a turnkey solution for electric vehicle supply equipment, charging installs, and post-deployment ongoing support.
Potential Drawbacks of Fleet Leasing
The main “drawback” of leasing is the lack of ownership. If you’re considering owning instead of leasing, it’s important to first crunch the numbers.
You’ll need to consider the:
- Cost of the vehicle (either new or pre-owned).
- Insurance payments.
Certain lease structures also have mileage limits and will penalize you if your drivers exceed that number. If mileage is a concern, however, consider an open-ended lease.
5 Factors to Consider When Choosing a Fleet Leasing Company
Not sure where to start? Here are five important points to consider as you research fleet leasing companies.
- Customer service: Excellent customer service is a must for any type of business, and fleet leasing companies are no exception. You want a dedicated client experience representative who will pick up the phone if you have a problem — and you should have someone’s direct line and not a 1-800 number.
- Types of fleet services offered: In addition to fleet leasing, does the company offer fuel, maintenance, or telematics services? Can they upfit your vehicles if you need something down the line? The right company will offer a variety of services and solutions. You may not use all of them, but it’s helpful to have them available should the need arise or if you want to add certain services.
- Flexible leasing options: Not every fleet leasing company offers the same variety of options. You want to find a company that offers vehicle leasing structures that work for your business. For example, some fleet management companies offer rent-to-lease programs allowing a fleet manager to convert a short-term lease to a long-term one without requiring the vehicle to go out of service.
- Environmental, social, and governance (ESG) principles: More and more consumers and employees are looking to partner with — and work for — companies and organizations that are committed to sustainability and diversity. This acronym is often associated with a company or organization’s goals and culture; it includes anything related to the planet, community, and philanthropic causes.
- Testimonials: First-hand testimonials from past or current clients are an excellent way to gauge a business. Don’t be afraid to ask a fleet leasing company for a list of references — they should be happy to provide one.
If you’re on the fence about fleet leasing, take the first step by contacting fleet management companies for more information. A conversation doesn’t cost anything; at the end of the day, you need to decide what’s in the best interest of your business. With the right partner, leasing is an excellent way to optimize efficiency, save money, and provide much-needed peace of mind regarding your fleet.