How does leasing work?
- Finance or full-service lease?
- Residual value or mileage lease?
- End-of-lease return or purchase?
It’s easy for companies of all sizes to enjoy the benefits of car leasing.
Types of lease
There various kinds of lease contract types. Here is a brief description of each one so that you know how they differ.
Mileage lease This is the most popular type of lease. The contract defines the term of the lease and maximum mileage for the leased vehicle. At the end of the lease, you simply return the vehicle to the lease provider. If you opt for a mileage lease, the lease provider bears the full remarketing and residual value risk at the end of the lease. If the actual mileage at the end of the lease differs from the originally agreed mileage, you pay the difference at the pre-agreed cents-per-mile rate.
If the returned vehicle has damage that goes beyond normal wear and tear, you will be charged for it according to your lease provider’s vehicle valuation criteria.
Residual value lease In this type of lease, the expected residual value at the end of the lease is written into the contract. Residual value is calculated on the basis of the agreed term and mileage. At the end of the lease, the vehicle is sold on the used car market, and the proceeds of the sale are compared with the contractually agreed residual value. If the sales proceeds exceed the calculated residual value, you receive 75% of the surplus. If they are lower, you have to pay the difference.
If you have a lease-to-own arrangement, you are under obligation to buy the vehicle at the contractually agreed residual value if the lease provider requests you to do so. However, you do not have the right to purchase.
Finance or full-service lease You can choose between a pure finance lease or a full-service lease that gives you a range of additional services for your leased vehicle. Full-service leases can include services such as maintenance and repairs, fuel and tyre management, vehicle insurance or claims handling – as well as online reporting and comprehensive consulting services for larger fleets.
All the services you arrange with your lease provider are included in your regular monthly instalment payment and any difference in amount is settled at the end of the lease. In this case, the lease provider assumes the risk of financial shortfall in respect of certain services.
This is how car leasing works
- Vehicle
Select your vehicle model(s).
- Term
Choose a term that suits your needs and preferences.
- Mileage
Estimate your annual mileage.
- Lease instalment
The monthly instalment is based on the term of the lease and the expected vehicle mileage, the interest rate and the estimated residual value of the vehicle at the end of the lease. It sometimes also includes the monthly costs for additionally agreed services.
- End of lease
You have two options at the end of the lease – either return the vehicle and lease a new one or purchase the vehicle.
- Cost settlement
When you return the vehicle, its condition is appraised and the vehicle mileage is noted. Depending on what you agreed in the lease, you may have to pay for any damage that exceeds normal wear and tear, as well as excess mileage, but you are reimbursed for miles not driven.
How can we help you with your decision?
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