There are many business areas that are related to transportation. Logistics companies use trucks for large shipments, taxi and car sharing services fill their fleets with passenger cars, and small business owners need transportation to deliver their goods.
Private individuals also often consider buying a personal vehicle. It is convenient and practical, whether a person lives in a large metropolis or a small town with poorly developed public transportation. However, sometimes legal or physical persons cannot afford to make a large purchase in a single payment. In the past, this problem was often solved through financing, but in recent years, leasing of automobiles has become increasingly popular.
Car leasing is a type of long-term rental of a vehicle, through which the lessee obtains the right to buy the vehicle at the end of the lease term. Compared to a traditional loan, leasing is usually more advantageous for both companies and individuals.
If you have long been considering starting your own business related to transportation, then car leasing can be an excellent idea. Of course, there are many peculiarities in this field that you need to know in advance, but with proper attention to details and sound planning, leasing can turn into a successful and profitable business.
The difference between a lease and a loan
Many people mistakenly believe that leasing is just a form of financing, the principle of which is little different from a regular loan. In fact, there is a fundamental difference between a lease and a loan.
Usually, when applying for a loan, an individual or legal entity borrows money from a bank. These funds can be spent on almost any needs, but the debt will have to be repaid with commission, the amount of which depends on the loan rate and the duration of the payments. If we talk about purchasing a car, then the person or company that acquired the vehicle with borrowed money immediately becomes its owner.
Car leasing works a little differently. Three parties are often involved in this transaction:
- Lessor, or a company that provides a car for temporary use to a client with the right to buy the vehicle in the future.
- Lessee, or an individual or legal entity that leases the car and makes monthly payments.
- Seller, or a distributor from whom the lessor purchases the car on behalf of the client’s request.
In other words, in the leasing model, the client borrows property (instead of money) in the form of a car from the leasing company. However, the lessee can become the owner of the property only after making all payments and completing the lease term. Typically, these payments are made monthly and include not only the rental fee but also interest on the value of the car. The amount of the payments depends on the initial down payment, the lease term, the availability of additional services, the class of the car, and other factors.
Advantages of a lease over a loan
Many individuals and companies who actively use vehicles in their activities are increasingly preferring leasing over credit. This is explained by a number of significant advantages that the client receives by renting a car using this financial model.
Thus, the main advantages for the lessee are as follows:
- Tax savings. The legislation of some countries provides for the possibility of returning the tax on the amount of the leasing agreement. Also, the lessee can save on the profit tax due to depreciation.
- Size of the down payment. As a rule, the down payment in the leasing model is much smaller than the payment required to obtain a loan. In some cases, this payment may not exceed 5-10% of the total amount.
- Security deposit. In the leasing model, the lessee can use the car without making a security deposit, while for lending, it is often necessary to pledge property that guarantees the performance of obligations to the creditor.
- Cost of the car. Often lessors offer cars in leasing with advantageous discounts, so the lessee can own a car at a price below the average on the market.
- Preferential leasing program. If there are special programs to support leasing in a particular country, the lessee can take advantage of a subsidy for the purchase of a car under such a model.
- Simplicity of registration. As a rule, the terms of lending are much more extensive and complex than the terms of leasing. Sometimes signing the contract and discussing the details of the deal can take no more than a few days.
- Additional services. Some leasing companies not only rent out cars but also offer extended service packages, including insurance, technical inspections of the car, fuel coupons, and other additional benefits.
- Buyout payment. If the lessee intends to buy the car taken on lease, the company may offer advantageous conditions for the buyout payment. In this case, the final cost of the car will be significantly reduced.
- Individual conditions. Leasing companies often show much greater flexibility than lenders. Therefore, the client can agree on individual payment terms, fixing a convenient payment schedule in the contract.
- Expenses for maintaining the car. In some cases, the lessor may include the cost of maintaining and repairing the car in the monthly payment, which allows for expense optimization.
Certainly, the leasing company also benefits from the arrangement. Here are some main advantages for a business owner:
- Profitability. Due to the popularity of car leasing services, the owner of such a company has every chance to create a profitable enterprise and gradually develop their business.
- Wholesale prices. Many distributors offer favorable conditions and discounts on the purchase of cars for companies on leasing.
- Ownership rights. Until the final payment is received from the lessee, you remain the owner of the car, which helps avoid many risks.
- Automobile leasing software. You can significantly increase the efficiency of your leasing business by using specialized software.
- Repeat leasing. If the client, after making all the payments, does not want to buy the car, you can lease it again, thereby obtaining additional profits.
Who benefits from leasing
In order for a leasing company to be successful, it is important to analyze the target audience and develop relevant business proposals for different categories of customers. Thus, leasing is most beneficial for:
- Large companies. Such legal entities give the opportunity to update the vehicle fleet and scale the business without allocating a huge part of the budget at once. This is advantageous, for example, for large logistics companies, well-known taxi services or huge retail chains.
- Small businesses. Leasing is especially attractive for start-up entrepreneurs whose budget is significantly limited. The owner of such a business can take cars on lease, for example, to open their own car-sharing company or create a fleet of vehicles for delivering their goods.
The lessor must take into account that when working with legal entities, there are quite a large number of leased vehicles. Therefore, it is necessary to pay a lot of attention to details: properly execute all documents, monitor the technical condition of the vehicles, control all payments and other financial transactions.
Therefore, owners of such businesses often turn to leasing management software for help. This is a set of tools that allows you to establish an online payment system, maintain a customer database, automate the process of booking cars, and receive information about the technical condition, location, and fuel reserve of vehicles in real-time.
How to lease a car
To properly lease out cars, it is necessary first of all to find experienced and qualified lawyers who will help register the company, obtain licenses, draw up all documents and write the terms of the contract. After that, you can start looking for your first clients.
Often, the process of leasing a car involves several stages:
- Choosing a car. The client leaves an application on the website or contacts the lessor directly, indicating the parameters of the car that they would like to rent.
- Signing the contract. The client provides the necessary documents, including those related to their income and credit history. After discussing all the terms of the deal, the parties sign a leasing contract.
- Receiving the car for use. The lessor purchases the car according to the client’s request, connects it to car rental and leasing software and hands over the vehicle to the lessee.
- Monthly payments. After the client receives the car, they regularly make payments, the amount of which is provided for in the contract. The payment may include expenses for car maintenance.
- Buying out the car. If the lease term has expired, the lessee has the right to buy out the car after making a buyout payment. In this case, the right of ownership of the vehicle is transferred to the client.
Car leasing is a popular service that has long been a profitable alternative to simple lending. This financial model provides many advantages for both the lessor and its clients, making the car leasing business very profitable and successful.
If you want to start your own car leasing company, it is necessary to take into account the peculiarities of this area of entrepreneurship. It is important to seek the support of experienced lawyers, competently draw up a contract, manage the car fleet, and systematize all financial transactions.
To automate some business processes, you can use automobile leasing software. This way, you can optimize costs, synchronize the work of all departments, and minimize most risks.