Have you secured the most economical leasing agreement for your fleet vehicles?
You might confidently say "yes," having conducted thorough research and considered all available options. However, there are two critical questions that may reveal the true answer:
If your response to both questions is YES, then congratulations, you have indeed obtained the best leasing option available. However, if your answer is negative, then the following information will be useful in ensuring that you maximize the money spent on your fleet vehicles.
The rate indicated in your leasing agreement typically does not account for all your leasing expenses. In addition to the visible costs, there are also hidden (implicit) costs, which could include acquisition fees, administrative fees, taxes, or any other expenses related to leasing. As a result, your implicit interest rate could be higher than the posted interest rate on your lease.
In order to effectively compare different leasing options, it is important to calculate the implicit leasing rate.
The implicit lease rate represents the actual interest rate being charged on a lease, factoring in all associated costs and fees. This includes the interest rate on the lease itself, as well as any fees, charges, or costs related to the lease, such as acquisition fees, administrative fees, and taxes.
Unfortunately, the implicit lease rate is not always disclosed by vehicle leasing providers and can be challenging to determine without all the necessary information. To accurately calculate the implicit lease rate, it is recommended to request the following information from your leasing partner:
By having access to this information, you can get a complete understanding of your leasing offer and make an informed decision that aligns with your financial goals.
Calculate the true price of your leasing agreement using this straightforward calculator.
The residual value is the expected value of the vehicle at the end of the lease term, taking into account its depreciation.
As you are aware of the true price of your lease agreement, let's examine another crucial aspect of a favourable leasing agreement. It is whether you have the option to purchase the vehicle at its residual value or its true market value at the end of the lease.
You should have access to purchase the vehicle at its residual value by the end of the lease term. However, some leasing companies may restrict you from buying the vehicle at its true market value, which in the current market situation is substantially higher than the residual value. It usually happens for two reasons:
In such cases, if you buy at the true market value, you will essentially forfeit any equity that may be available in the lease. On the other hand, if you opt to purchase the vehicle at its residual value, you can sell it at the true market value to another buyer and recover the difference (i.e., equity).
Once the lease ends, you are not the vehicle owner. What happens when the contract ends depends on the provisions stated within the lease. You may have the following options:
Keep in mind that if you don't have access to the vehicle's value, you're essentially just renting it. While this may seem like a safe option, it limits your potential profits.
Unfortunately, many lessors are not fully transparent about all available options to their customers. They often limit their offerings to closed-end leases or fail to disclose the residual value of the vehicles. As a result, these companies miss out on the opportunity to benefit from the high resale values for used vehicles, which are currently at an all-time high. By opting for an open-ended lease, companies can recapture equity and make the most out of their vehicle investments.
At Foss, our commitment to full transparency means that we not only advise our clients on the most advantageous leasing options for their individual needs, but we also assist in maximizing the return on their fleet vehicles through the reselling process.