What is Car Leasing And Why Is It Needed?

Car leasing

Last Updated on August 9, 2023 by

Often, to make a significant and large purchase, individuals or companies need significant start-up capital. If the required amount has not yet been collected, buyers often resort to convenient financial services, one of which is leasing. Speaking about buying a car, we can safely call leasing one of the most profitable ways to purchase a vehicle.

Leasing allows an individual or legal entity to rent a car for a long time. Leasing differs from conventional lending in that, in addition to monthly payments, the lessee also covers the cost of the car itself and the interest rate. Thus, they have the opportunity to buy the vehicle at the end of the contract and become its full owner.

This buying model is especially advantageous for a business that involves many vehicles, such as a taxi, delivery service, or car rental company. Even with limited start-up capital, leasing allows you to launch a successful business with an existing fleet. That is why the car leasing business is gaining more and more popularity: such companies are able to generate high income, can use special leasing software and scale their business significantly over time.

What is leasing?

Car leasing is a type of financial service that involves a long-term lease with a further opportunity to buy the leased property. In this case, three parties are usually involved in the process: the seller, the lessor, and the lessee. The lessor buys a car from the seller in order to later lease it to the lessee.

Leasing companies provide a number of other important services, because it is the lessee who buys the car from the seller, draws up all the necessary documentation, insures the vehicle, and pays taxes. All these processes require careful control, detailed budget planning and well-coordinated cooperation of the entire team.

Therefore, lessors often use automotive leasing software. This makes it possible to increase work efficiency, automate routine processes, synchronize cooperation of all departments and minimize the possibility of error by eliminating the human factor.

Thus, leasing is a special type of economic relationship, thanks to which the lessee can use the vehicle during the term of the contract, while paying a predetermined amount on a monthly basis. It is important to note that the lessee has the opportunity to choose a specific vehicle according to their request, which is especially important for business owners associated with cars of different specifications.

During the term of the leasing agreement, the lessor remains the owner of the vehicle, because it is the leasing company that buys the car from the dealer. The lessee gets the vehicle in their ownership only after the contract  expires and all payments are made, including the residual value of the car.

What are the advantages and disadvantages of car leasing?

Car leasing is popular due to several important advantages, including:

  1. When buying a car from a dealer, the lessor pays for the registration of the vehicle and its insurance, and also pays taxes established by law. In the future, these costs can be included in the monthly payment of the lessee, along with interest, which allows you to evenly cover the costs.
  2. Legally, the car belongs to the lessor until the end of the contract, which helps to avoid certain risks and return the vehicle in case of violation of the terms of the contract by the lessee.
  3. The possibility of buying a large number of cars on favorable terms through partnerships with car dealers.
  4. Relatively fast payback of transport leased for redemption.
  5. Advantages in taxation.
  6. Ability to use convenient and efficient software for car rental and leasing software.
  7. The lessee has no right to sublease the car without the permission of the lessor.

If you decide to start a car leasing business, you must also consider the disadvantages of this line of business, including:

  1. To buy a car from a seller, a fairly large starting capital is required.
  2. It is necessary to carefully approach all legal subtleties for the correct registration of the car, insurance and payment of all taxes.
  3. The lessor is responsible for the leased car, as the ownership of the vehicle is valid until the end of the contract.
  4. There are several risks associated with fraudsters and unscrupulous lessees, which can lead to material damage and unforeseen expenses.

After weighing all the advantages and disadvantages of leasing, you will be able to plan the company’s budget more carefully, minimize risks, receive good income and develop your business in the future.

Terms and benefits

If you want to attract more customers, you can consider profitable offers and special conditions for the lessee. This will help to personalize the leasing model and take into account all the wishes of the client, which as a result can become an impetus for a reliable and long-term partnership.

For example, you can offer a client different types of car insurance, including these costs in monthly payments. The provision of these and other additional services can be controlled using specialized leasing software.

It will also be an advantage if you can provide the lessee with several leasing schemes to choose from for the client to make payments in the most convenient way for them. This is especially important for clients whose work is seasonal. In this case, the amount of payments can be adjusted to the average income of the client at different times of the year.

Car leasing scheme

In most cases, leasing a car occurs according to the same scheme. Here are its main steps:

Car selection.

The lessor chooses a car dealer and a car for purchase either independently or at the specific request of the lessee.

Collection of necessary documentation. The buyer must provide an application and all necessary documents.

Signing contracts.

The lessor signs an agreement for the purchase of a car with the seller, and an agreement on leasing the vehicle with the lessee.

Down payment.

The lessee must pay the agreed amount of the down payment.

Transfer of the car.

The car is provided to the lessee for use for the duration of the contract.

Payment of rent.

The lessor receives monthly payments from the client, the amount of which is indicated in the contract.

Transfer of ownership. When the contract expires and all payments are made, the client receives ownership of the car.

Types of lease payments

There are different types of lease payments, but the most common are annuity and recourse payments.

  • ·  Annuity payment is a type of payment that is evenly distributed over the entire period of the contract.
  • ·  Recourse payment differs from the annuity payment in that the largest percentage for leasing falls on the initial stage and decreases over time.

The choice of the type of payment may depend on the seasonality of the lessee’s work, their financial capabilities, and the features of the planned budget.

The car leasing business is becoming more and more popular and promising. This is due to a large number of advantages for all parties involved in leasing. If you take into account all the features of this financial model, a quick payback, good profit and stable growth of the company will not keep you waiting.

Apart from this, if you are interested to know about “Benefits of Hiring a Sports Car” then visit our Business Category