Operational leasing: how does it all work
This article will briefly explain how operational leasing works, what are its advantages and disadvantages, and will also help to clarify the basic terms. And then it will be easier for you to decide if this is the right solution for you or not.
Operational leasing is becoming the choice of more and more entrepreneurs in the Czech Republic. What are the advantages and what risks does it have?
It doesn't matter if you have a large company or a small business. A day will come when you have to deal with the financing of company cars, and it will probably come very soon. In the meantime, you browse the Internet, you have asked your acquaintances about their experience, and you're trying to get an idea of what your options are. But the amount of information and concepts is so confusing and annoying that you'd rather pair all your socks at home and file the tax return a month earlier than having to actually dive into this area.
Terms that are good to know
- operational leasing – long-term vehicle rental, which includes connected services (such as maintenance, tires, road assistance), vehicle is returned to the leasing company after the lease period expires
- financial leasing – form of vehicle purchase in installments, usually a down payment is required (typically at least 30% of the purchase price), services are not included and the vehicle becomes your property after the lease period expires
- down payment – the first installment or prepayment for the vehicle, this does not usually apply for operational leasing
- residual value – estimated price of the vehicle, for which it will be sold after the lease expires; you don't have to worry about this in case of operational leasing as the leasing company bears the risk
Small businesses and entrepreneurs in the Czech Republic are still coming to terms with the use of operational leasing, which is already quite common for larger companies. However, the share of operational leasing in overall financing of company cars is growing every year both in the Czech Republic and abroad. The concept of operational leasing is best conceived if you imagine the car as a service. You only rent the car or cars from the selected leasing company for a certain period of time, usually for three or four years. You pay the calculated monthly installments and the leasing company takes care of the rest. Under normal circumstances, with operational leasing you don't have to worry about, for example, vehicle maintenance or tire replacement, because you lease the cars as an all-inclusive service (more or less). You will have much more time left for your own business. Of course, each leasing company offers different services and different conditions. The seemingly best price may turn into a higher price once you account for all the services and the like.
Empty hands syndrome
Entrepreneurs often consider the operational leasing only because of no upfront costs. You don't have a lot of cash, and yet you can afford a little luxury in a car that would otherwise be difficult to reach. However, others are often discouraged by the perceived high price of the installment and also by the fact that after three or four years they will not keep anything in their hands, as the car is returned to the leasing company. This makes operational leasing different from financial leasing, where you need to pay a certain percentage of the value of the car at the beginning of the contract to make a down payment, yet the car remains in your property after the lease period. Still, with financial leasing, you will pay for all services, repairs and other costs, which makes it a more expensive service, and the costs are more difficult to plan. In case of operational leasing, you can buy the car at the end of the lease.
Maybe you would like to give it a try with the elegant and charismatic ŠKODA Karoq. With a lease period of 3 years and with yearly mileage up to 25.000 km, it can be had at CZK 9311 per month.
It is still very difficult for many people to accept the fact that they do not own their car. But others will look for new and modern ways to get from point A to point B, and then operational leasing can be a friendly solution. We have therefore summarized all the advantages and disadvantages in order to make your decision easier. If you're still hesitating after reading this article, try and take a look at how we approached the 7 biggest myths about operational leasing.
Advantages of operational leasing with the right setup
- you don't worry about repairs and maintenance
- no need for initial investment, regular monthly income is sufficient
- the risk of residual value of the vehicle is borne by the leasing company if you adhere to the agreed mileage and lease term
- vehicle fleet according to your desires and possibilities
- custom-made services, you will select the right services to accompany the lease
- lowest total cost of operation compared to outright vehicle purchase or to financial leasing
- the fixed monthly lease installment is fully tax-deductible
Disadvantages of operational leasing
- you do not own the vehicle after the lease expires
- if you do not take care of the vehicle properly, you will risk the excessive wear and tear charges at the end of the lease contract