| By :
Dirik Hameed
Businesses have different types of vehicle leasing available to them. First, it is important to understand a car lease. Depreciation is the largest part when you lease a car. This is what the lease is based on. Monthly payments are determined by the depreciation. The amount the value of the car decreases during the lease period is the depreciation. Here are some interesting facts about depreciation. If the car depreciates quickly, the payments will be much higher. This is great for the company that is the lessor. A car that does not depreciate quickly will have less expensive payments. This is good for the business that is the lessee. When the economy fluctuates, the depreciation of the vehicle will too. Other depreciation variables are the make, model, and year. The depreciation of a vehicle is more rapid in the beginning of its life. Usually, it evens out after that. Businesses usually use open-end leases. An open-end lease means the business must pay another charge if the vehicle has depreciated more than expected. With a closed-end lease, the consumer can simply walk away at lease end. This is whether the depreciation was greater or lower than estimated. Individuals are primarily offered this type of lease. 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 type of car leasing is very common. The length of this type of contract can be from 1 to 5 years. The details of this contract are designed to fit business needs. A maintenance agreement is optional with a contract hire lease. There are several advantages to this contract. It does not appear on the balance sheet. The interest rates are fixed. There is no depreciation risk. This is the responsibility of the leasing company. A second type of lease is a lease purchase. A lease purchase has some strengths and weaknesses. The deposit on this type of car leasing is smaller. It also generally has lower monthly payments. The company can invest the money into the business instead. This type of contract has a disadvantage at the end. This is when a large balloon payment will be due. It is vital to the business that it makes certain this money will be available at that time. The anticipated future value of the car is the payment due at lease end. The vehicle then becomes the property of the lessee. Businesses may reclaim the VAT, if the vehicle was used for business purposes only. An additional type of lease available is a finance lease. A tax efficient option for businesses is a finance lease. The company that is the lessor retains ownership of the vehicle. This type of lease does appear on the balance sheet. Generally, monthly payments and interest rates are fixed. The most important aspect of car and leasing choices is complete comprehension of the available options. The information will determine what the best choice for the business is. Another important aspect is to fully comprehend the lease before signing it. If not, the business can get into financial difficulty. The reason for leasing vehicles is forward progression of the business.
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