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Leasing decoded: the essence and benefits at a glance
You have undoubtedly heard about 'leasing' before. Leasing is very popular. Especially in the business context - and particularly for the financing of company vehicles. But what exactly is leasing? What does it entail? What forms of leasing exist? And what are the benefits that make leasing so popular? You'll discover it in this blog.
What is leasing?
Leasing is a form of financing that allows businesses (and individuals) to 'rent' assets or equipment from a leasing company. The leasing company finances what you want to lease and makes it available to you. In exchange, you pay a monthly payment for the use of it.
3 types of leasing: which one suits you best?
You want to start leasing? Great idea. Did you know that there are three forms of leasing? As a business, you can choose between operational and financial leasing. If you, as an individual, want to get started, there are solutions such as private lease.
In this blog, we will explain what operational and financial leasing entail.
Operational lease
Operational lease is a leasing formula where the leasing company not only provides a vehicle, but also takes care of all the mandatory administrative matters (insurance, taxes, levies) and the management of the vehicle. As a lessee, you pay a pre-agreed monthly rate that covers all these costs.
Since the leasing company purchases the vehicle, the vehicle remains the property of the leasing company (legal owner) and is recorded on the leasing company's balance sheet (economic owner).
During the lease period, you as the lessee have the right to use the vehicle (economic user). You can include the monthly lease payments as expenses.
How does operational lease work?
- You choose a leasing company where you want to lease a company car.
- You determine which vehicle you want to lease from the leasing company's offering. Each company works with carefully selected suppliers and distributors to compile their range.
- You configure the vehicle yourself at a dealer of your chosen brand or via a tool of the leasing company you have chosen. You then provide this configuration to your leasing company. They confirm your order and finance the purchase of the vehicle.
- You and the leasing company draw up a lease contract. This contract states how long you will lease the car and what your monthly payment will be. With operational leasing, you can also include additional services such as fuel supply, insurance, tire changes, and more. It depends on the chosen party which additional services you can add. Discover full-service operational leasing by Alphabet.
- You return the leasing vehicle at the end of the lease period. You can also buy the vehicle if a purchase option was included in your contract, but this happens less frequently in practice.
Due to its all-inclusive nature, operational leasing is by far the most popular form of leasing.
Discover our option for operational leasing
At Alphabet, we work with operational leasing with a wide range of additional services, even up to a full-service operational leasing formula. Discover our possibilities here.
Financial lease
With financial leasing you only pay for the use of your company car. Optionally, you can also outsource the administrative matters to the leasing company. However, the management is your own responsibility.
Just like operational leasing, the leasing company remains the legal owner of the vehicle when you have a financial leasing. However, the vehicle is recorded on the lessee's balance sheet. During the lease period, you as the lessee have the right to use the vehicle (economic owner). The accounting treatment for your company in financial leasing is done through your balance sheet. This is disadvantageous for your company, as your debt ratio will increase as a result.
When you take a financial leasing, your lease contract always includes a purchase option. This allows you to take over the vehicle at the end of the lease period. In this form of leasing, the residual value of the vehicle may not exceed 15% of the catalog price.
And what about ‘renting’ then?
In addition to leasing, there is also renting, a form of hiring company cars.
The benefits of leasing
- You maintain more liquidity: since you don't have to purchase the vehicle yourself, you also don't have to make a large (initial) investment. This leaves you with more resources for other business matters.
- You can choose your own vehicle: you can choose which vehicle you want to lease and which options it should have. Your employees can also choose within categories, within the car policy and/or within a given budget.
- You outsource administration: with operational leasing, the leasing company is responsible for all administrative matters, the management and the follow-up of the vehicle. With financial leasing, you can choose to outsource administrative tasks.
- You only pay a portion of the VAT: the leasing company pays the invoice for the company car, including VAT, to the supplier or distributor. You only pay a portion of the VAT, based on your use of the vehicle.
- You can customize your lease contract: you can have a lease contract drawn up to your specifications - within the realm of possibility - such as how long you want to lease the vehicle, which additional services you want to include, and more. With financial leasing, you also determine the residual value of the vehicle and thus the amount of your monthly payments.
- You can optimize your total cost of ownership (TCO): with leasing, you can significantly reduce the total costs of your vehicle fleet, especially if you choose electric leasing. Curious how much you could save by switching to leasing? At Alphabet, we're happy to help you perform a TCO analysis.
Disocover Alphabet's leasing possibilities
Would you like to learn more about operational leasing after reading this blog? Contact us without obligation or click the button below to discover our operational leasing options.
