Is a five-year lease term optimal for your enterprise?

Corporate car leasing for a five-year term has many advantages, some of which depend on the enterprise’s requirements and usage. With a long-term car lease, businesses can better project operating costs for the long term, negotiate better deals and optimise mileage allowance. However, choosing a long-term car lease, suitable for your business, involves a number of considerations.

The advantages of long-term leasing offset the benefits of buying a vehicle or opting for short-term leases if it fits your business model. The line of business your company operates in, and its characteristic mobility needs will guide your decision-making process.

In addition to tenure, aspects like mileage, maintenance, annual insurance, vehicle running costs, initial investments and down payments, employee productivity and even brand perception, all come into play while looking for the ideal car lease for your business.

While considering a five-year car leasing for your business, you should assess both, the advantages and the risk factors. Ultimately, it will boil down to taking a calculated decision about when the costs (including some hidden ones like people’s time) outweigh the returns.

Example of an analysis chart for optimal vehicle replacement duration.

You will need to prepare a similar one for your business, to determine the optimal vehicle replacement point.

Being mindful of your fleet’s optimal replacement time, right from day one, is necessary to forward-plan the organisation’s future needs. If the company is committed to using a vehicle for a defined period, then its leasing and operating conditions can be identified, allowing greater control of financial management. In most cases, a five-year company lease plan is optimal for organizations. Let’s take a look at the factors that go into deciding if a five-year lease is a right fit for your enterprise.

● Mileage : Every lease contract comes with a pre-determined mileage, overshooting which could lead to extra costs. So, it’s important to have a good estimate of the miles your company leased cars are expected to run.

Most business car leasing companies in India may offer mileage between 10,000–15,000 kilometres per year, on various 24 to 36 months plans. However, a longer five-year lease plan could help your enterprise negotiate annual mileage all the way to 20,000 kilometres (plan-dependant). Therefore, it is always better to have a suitably long lease tenure, that gives you all the room you need, when it comes to mileage.

● Maintenance and Insurance Costs : The best car leasing companies in India, like ALD Automotive, cover “fair wear and tear” and insurance costs in the pre-determined monthly lease rental you pay. This alone makes it worth opting for a leased car, instead of a bought vehicle. It saves your enterprise the burden of maintaining an asset and the human resources required to oversee fleet vehicle maintenance.

Long duration five-year car leasing could be ideal for enterprises looking at minimising non-core activities. Any hidden charges involved in insurance policies or unnecessary maintenance can be side-stepped, as the leasing companies employ specialists to oversee these aspects of vehicle upkeep and management.

The leasing company uses its expertise, warranties, and insurance to settle and manage most maintenance and repair costs. So, if your enterprise is considering a five-year vehicle lease, then evaluating the maintenance and insurance costs while calculating the ideal lease duration is important. ALD Automotive handles both maintenance and insurance claims for its leased vehicles.

● Vehicle running costs : A five-year car leasing period is ideal for businesses that are looking to normalise variable costs like repairs, maintenance and running overheads. By choosing a five-year lease term, enterprises will be in a better position to strike a nominal deal with the lessor, which may lower monthly payments and other associated costs. This helps bring down the Total Cost of Ownership of the vehicles. Additionally, a commitment beyond 36 months has its advantages for both lessor and lessee. The lessor will be sure about generating a stable income, allowing room for potential discounts or favourable pricing for the lessee — a win-win.

● No upfront cost with leasing : Buying a car, and even some short-term lease agreements, includes clauses related to initial/ upfront payment. These tend to be burdensome for most businesses. Upfront costs may include refundable security, down payment, first month’s rental payment, other fees, and taxes. However, if your business is pledging a longer duration, such as a five-year lease term, upfront costs are significantly lower, if present at all (plan-dependent). Savings made on upfront costs can be utilised in day-to-day operations or other revenue-generating activities. Leasing companies like ALD Automotive bring their clients the benefit of no upfront costs, based on the lease opted for.

● Improved productivity : Most modern vehicles are tested for ruggedness and optimised for minimal maintenance. This makes it possible for a business to keep leased company cars operating at peak usage, drawing maximum utility from the vehicles. As vehicles age though, it becomes imperative to replace high-wear parts and ensure timely repairs. For a purchased vehicle, the parts requiring replacement, gradually increase, driving up operating costs. A five-year lease, and a good leasing partner like ALD, lets you access a robust network of workshops throughout the tenure. This helps you significantly reduce downtime, while your enterprise benefits from preferential pricing and timely deliveries.

● Optimising bookkeeping and cost prediction : Keeping in mind optimal vehicle replacement points for various vehicles required by the enterprise, five-year lease durations make sense, since it does away with the burden of building an asset into the organisation’s books. Corporate leased vehicles can be factored in as operating expenditures. Operating expenditures need to be planned well in advance and be forecastable. Long-term leasing provides a suitable avenue to provide the stability of known expenditures.

Businesses need to judiciously balance productivity and expenditure. A five-year vehicle lease can ensure that the company can leverage the advantages of optimal vehicle performance, while the burden of maintenance and replacement of an ageing vehicle is done away with. Calculating the optimal vehicle replacement point is the key to evaluating the duration brackets best suited for the kind of business your company is operating.

For assistance with procuring best-in-class leased cars for corporates fill out our contact form.