Tag Archives: company car lease policy

Operating lease or finance lease – what’s best for your company’s car fleet?

Deciding on a corporate car lease is a vital course of action for your business. Choosing the correct route and plan can be confusing, with multiple factors to analyse and account for. However, when it comes to car leasing, there are 2 kinds of leases that you can choose from – operating lease and finance lease. What’s right for you, depends on various factors. Let’s simplify both the options and understand the specifics of each lease.

Finance lease

A finance lease is often provided by a financial institution without any added support for cars or automotive services. Such a lease provides cumulative financing on the ex-showroom price and the on-road tax. You can buy the vehicle towards the end of the lease with a balloon payment.

  • Since this lease provides cumulative financing, the interest added to it is significantly higher as compared to a car loan. Instead of a down payment or an outright payment at the beginning of the tenure, a financial lease includes a balloon payment towards the end. A balloon payment can go up to 20% of the cost of the car. The remaining 80% is equally divided in monthly instalments for you to pay out gradually and regularly.
  • This lease allows your expenses to be spread across time. It is helpful if you do not possess the finances to make a hefty payment all at once. In this case, you do not incur a massive expense altogether, something that happens when you purchase a vehicle outright.
  • The ownership of the vehicle in such a lease lies with you and not the financial institution that facilitates the lease. As a result, the risks and rewards attached to the vehicle also fall into your lap.
  • A finance lease allows you to personally manage your automotive services and make sure you get it done your way. This is because expenses like car servicing, maintenance and roadside assistance have to be overlooked and incurred by you. These services are not included in the lease.
  • In this agreement, the lease rentals are calculated on the full useful lifespan and value of the vehicle. The leased vehicle becomes a part of your assets in your balance sheet.

Operating Lease

An operating lease is an agreement where you pay a monthly payment to the leasing company for the right to use the car. Such a lease comes with a few add-on advantages that can be included in the payment. You can either return or upgrade the car at the end of the term or you can also choose to buy the car towards the end of the lease period.

  • In such an agreement, no outright down payments are required. While calculating the monthly rentals, the resale value of the car is already subtracted. Hence, the lease rentals that you have to pay are calculated on the depreciation and not on the entire value. As a result, you capitalise only an approximate of 40% of the car value.
  • This lease enables you to free your capital and prevent it from getting blocked by a major expense such as vehicle ownership since you do not capitalise on the entire value. You can utilise this capital for more important ventures that could be higher up on your priority list.
  • With the option to return the vehicle at the end of the lease, you eliminate the worry of its resale value. Opting out of ownership erases any obligation or risks regarding fluctuations or uncertainty in the used car market. Any risks that run with the car lie with the leasing company, freeing you of worry.
  • An operating lease can include add-on services like road tax, maintenance, servicing, tyres, and roadside assistance in the predetermined amount. This allows you to plan your finances better as there will not be any surprise expenses to bite into your budget.
  • All kinds of leases are required to be presented in your books of accounts. However, in such an agreement, the payment is an operating expense and the lease rentals are tax-deductible. Since unlike a finance lease, you do not pay for 80% of the car value but only pay 40%, your books also remain lighter.

There are very few car leasing companies in India. Of which, ALD Automotive is the leading French originated automotive mobility service provider in India. Established in 2005, it is also one of the leading fleet management and full-service car leasing companies in the world. It offers a wide range of comprehensive mobility solutions that help companies like you concentrate on your core business, while they take care of your vehicle fleet.

Getting the best car leasing plan for your employees can be confusing, especially when there are multiple aspects to take into consideration. But with the correct partner like ALD Automotive India, you can get the perfect plan drawn for your business and have a smooth car leasing journey.