The pros and cons of leasing v purchasing fleet vehicles

Determining whether to lease or buy your business fleet vehicles is a decision which will largely be dependant on the type of business you are operating, your access to capital and the cost of the capital to your business. You will need to consider a multitude of issues including; interest rates, tax, maintenance costs, repairs, depreciation and fleet management.

Each of these number of factors which will influence your decision. For example, a significant amount of capital is required to purchase fleet vehicles outright, whilst the upfront costs of leasing are minimal in comparison but ultimately you won’t own the vehicle.

Here we outline the pros and cons for each option to help your business decide.

Pros of leasing

As with the leasing of many other products, the primary benefit to leasing your fleet vehicles comes down to convenience and availability of staff to carry out timely administration and maintenance arrangements.

• Full-service leases include maintenance, repair, accident management, insurance and registration
• No large down payment is required
• Monthly payments are fixed helping your budgeting
• Every 3-5 years you can upgrade to the most current vehicles
• Lease payments can be part expensed from the company’s VAT if used for business only

Cons of leasing

• You won’t own the vehicle and build equity
• Leases will limit your options in terms of modifications
• If you exceed mileage limits or experience excessive wear and tear you will be charged penalties

Generally, leases will command slightly lower monthly payments than purchasing, however it is important to be aware of the small print and possible charges for early termination of contract, exceeding your mileage limits or excessive wear and tear.

Pros of purchasing

• The total cost of purchasing is likely to be lower than leasing
• Ownership means once the finance is paid you own the asset on your balance sheet
• There are no limitations on mileage, usage or customisation of the vehicle

Cons of purchasing

• You will need to fund the cost of maintenance and repairs which increases with vehicle age
• A large upfront cost can negatively affect your cashflow
• You will need internal resources to manage your vehicles
• You’ll need to sell the vehicle on when you are ready

By purchasing your fleet vehicles, you will have more control over what you do with the vehicles as well as being able to re-coup some of the original investment when it comes to finally selling it. However, you will need to manage your vehicles internally with experienced staff and ideally implement preventative maintenance programs to ensure vehicles remain safe and costs are minimised.

When determining which route to take it is important to understand what it is that you are looking to achieve from your fleet model. Is it having less of an administrative overhead, more cash flow, more control over your fleet vehicles or projecting the best image with the newest vehicles on the road?