Nowadays, fleet operators working in the transport sector have to deal with many difficult dilemmas. One of the most important of such dilemmas is whether to lease or rent heavy-duty trucks. After all, an operator’s fleet is, in many ways, the basis of his business: there aren’t many things more important in the transport industry than the vehicles themselves!
The decision over whether to lease or rent trucks, therefore, has a big influence on a company’s daily ability to function and maximise its bottom line. In this article, we will examine the benefits and downsides of both leasing and renting to allow you to decide which option is best for your business.
Leasing is like renting on a longer-term scale; it usually involves contracts being signed every 5 years or so. It is the typical method for small to medium-sized companies that need to gain access to trucks.
Advantages: Leasing allows fleet operators to use vehicles without the upfront costs, hidden or unexpected fees and credit obligations that often go hand in hand with buying. With leasing, the full value of the vehicle can be deducted as a tax expense (not the residual value). Furthermore, the entire price of the vehicle is financed and, as the invoice is issued in the name of the entity, there’s no need to advance the VAT. Down payments are not necessary for leases and fleet operators can expense the cost of the vehicle on a monthly basis instead of carrying its liability on their balance sheet. This means that operators have more credit flexibility to invest capital in other areas of their business, and can better focus on their overall business model, instead of worrying about down-payments or credit repayments on assets (as with buying).
Crucially, leasing does not depreciate and fleet operators can capitalise on the fact that the residual value is usually very close to the market-value of the vehicle, allowing them to buy the vehicle over time. This means that until the end of the lease period, they have three options: to keep the vehicle, to return it, or to buy a more modern version. As with renting, fleet operators engaging in leasing can upgrade to newer technologies much quicker than if they owned their own fleet due to shorter trade cycles.
Disadvantages: Cancelling a lease before the end of the lease period can result in significant extra costs. Companies are locked into using the same type and number of vehicles for large periods of time, increasing operational costs if they cannot adjust fleet size according to falls in demand. Additionally, for companies looking to own the vehicle(s), they only technically have ‘full ownership’ once the contract ends, limiting what they can do with the vehicle until that point. Unlike with renting, fleet operators also have to cover the repairs, insurance and maintenance of the vehicle(s) themselves, often resulting in unexpected costs down the line.
Rental periods tend to be shorter than lease periods - usually around 36 months. Due to this increased flexibility, they are often very popular with fleet operators.
Advantages: Companies with fleets often turn to renting for two main reasons. Firstly, renting guarantees fleet operators access to the most modern vehicles on the market, meaning their operations can be more efficient as the likelihood of any maintenance-induced delays is reduced. Secondly, rental contracts tend to cover maintenance, repairs, fines, and insurance, meaning that fleet operators and their employees can focus on higher-value tasks. Renting also has certain fiscal advantages: in many European countries, including Spain, rental costs are accepted as ‘expenses’ in tax declarations, allowing them to be deducted from national corporation tax. Moreover, unlike leasing, which is generally long-term and fixed, renting allows for greater flexibility in terms of adjusting the volume of the fleet according to the company’s volume of work.
Disadvantages: Rental contracts often stipulate fixed terms and mileage, which can limit operations or result in huge after-costs if the contract terms are broken. Furthermore, once rented, no modifications can be made to vehicles and they cannot be bought, as with leasing, when the contract ends. Subletting vehicles is also not permitted. Although rental contracts that cover maintenance can be very convenient, they also mean that fleet operators cannot choose the repairs company. If the latter makes a mistake, this can have a big effect on the fleet operators’ ability to serve their clients.
Ontruck Changes the Fleet Game
Of course, many companies do not choose only one of these options: some fleets combine leasing and renting in order to allow fleet operators to benefit from the advantages of both models. Companies must assess all their different variables - from the type of operations they specialise in, to their organisational preferences, from their usual routes, to the seasonal peaks and troughs of their business, and their financial limits - before choosing which option is ultimately best for them. Managing the decision between renting and leasing while also keeping operations afloat can be difficult, however.
Ontruck can help fleet operators get around this challenge by offering them the best availability of qualified carriers, with a huge variety of vehicles that can be viewed and booked directly through its digital freight marketplace. Once a vehicle, or several vehicles, have been chosen, Ontruck allows operators to retain flexibility - whether renting or leasing - by providing the option to assign loads on-demand. With both dynamic pricing and customisable loads, Ontruck enables fleet operators to make the most out of their chosen vehicles without fixed contractual obligations getting in the way.