When acquiring or upgrading a fleet, business owners have two broad options: Leasing and purchasing. Both options have advantages, and in this article, we will compare and contrast them to help you make a better decision for your business.
Money
Cost is the first thing most decision-makers consider when comparing buying a fleet to leasing one. Let’s begin with a broad overview of the financial implications of buying or leasing a fleet:
| Consideration | Leasing | Buying |
| Monthly payments | Lower | Higher |
| Taxation | Tax-deductible as an operating expense | Depreciation may be claimed as capital cost allowance (CCA) |
| Depreciation | Risk absorbed by the leasing company | Risk absorbed by you |
| Impact on financing | Operating expense, not liability | Liability (though fleet vehicles also appear as assets on a balance sheet) |
| Ownership | No – unless there’s a buyout clause | Yes |
| Resale value | No – unless you buy the fleet at the end of the lease term | Yes |
| Value over time | Higher if you need new equipment regularly | Higher if you plan on keeping your equipment in operation for a long time |
This table offers a broad overview of the advantages of leasing and buying when it comes to your company’s finances. The option that will be better for you depends on the nature of your business and the state of your finances.
A company that is heavily leveraged might opt to lease instead of buy in order to maintain its ability to borrow or keep its interest rates low. Conversely, a company that is under-leveraged may be more inclined to buy.
How the fleet will be used has a substantial impact on which option is best for a company, too. A company that needs to upgrade its equipment regularly will be more inclined to take out a lease; it would need to sell a purchased fleet anyway, and it’d lose money to depreciation. A company that plans on modifying its fleet and using it for decades, on the other hand, may be better off buying.
Finally, consider that lease payments are typically much lower than purchasing outright. These lower monthly payments often make leases a more attractive option than purchasing outright.
Lease payments can also come with substantial tax benefits—but it’s important to talk to your accountant to see how those tax benefits compare with the benefits of buying outright, like the capital cost allowance (CCA).
Company Image
Company image might not be the first thing you think about when comparing leasing to buying, but it’s important to keep in mind.
Your fleet sends a message about your company. When your company’s fleet vehicles look new, it can send a positive message to customers—and when you lease, your vehicles always look new.
Leasing also offers a green angle. Leasing companies are incentivized to help you keep your vehicles in pristine condition so they can lease them again once you’re finished using them. This offers sustainability—a use-refurbish-reuse model instead of a use-discard model. Newer vehicles are often more eco-friendly than old vehicles, too, helping reduce your carbon footprint.
Depreciation
Leased vehicles and owned vehicles both face depreciation costs—the difference between them is who takes on the cost of depreciation.
When you are leasing your fleet, the leasing company takes on the risk of depreciation. This means it’s heavily incentivized to lower depreciation—that’s the core reason why lease agreements often feature clauses that discount the cost of routine maintenance.
Buying your fleet puts the cost of depreciation on your business. As you know, vehicles lose a substantial portion of their value the moment they’re purchased—they go from being new vehicles to used vehicles. There are ways to recoup some of the costs associated with depreciation (like capital cost allowances), but some losses due to depreciation are almost inevitable.
One of the disadvantages of leasing is that leasing companies will often place mileage restrictions on leased vehicles. This is to help limit depreciation. Owning vehicles can be an advantage if you cannot predict how many miles you’ll put on a vehicle and you expect that you may go over a pre-determined mileage restriction.
Fuel Management And Costs
Fuel management is another surprising factor to consider when comparing leasing and buying fleet vehicles. Leasing makes vehicles more accessible because you don’t need financing, and you’ll have lower monthly payments.
This means you can usually lease newer vehicles, even if you couldn’t buy newer fleet vehicles outright. Newer vehicles typically have better fuel efficiency—that means the cost to operate your fleet is that much lower. Depending on your industry, you may even be able to lease electric vehicles to drastically reduce your operating costs.
Conclusion
For most businesses, the financial benefits of leasing outweigh the benefits of vehicle ownership. When you’re leasing, you don’t need to worry about vehicle disposal, and there’s less concern about wear and tear since you’ll operate your fleet for less time.
Aside from the cost savings of leasing your vehicles, there are the benefits of having access to the newest vehicles. We’ve discussed how this can lower fuel costs, but it can also help by giving you access to larger vehicles, vehicles with better safety features, and more. This can improve the operational efficiency of your company.
Interested in fleet leasing in Winnipeg? Contact Falcon Leasing today. Another advantage to leasing is that you can lean on the expertise of your leasing company. We can help you find the best vehicles for your fleet at the best price and then arrange for leasing terms that meet your exact needs.
