What Is a Fleet Lease Vehicle?

Owning an entire fleet of vehicles can be intimidating because of the significant financial investments and ongoing fleet maintenance required. But what if you could access a top-tier fleet without the hassle and risks of owning it? This is what you can get with fleet lease vehicles.

The U.S. transportation industry is quickly adopting this model as a smart alternative to traditional fleet ownership for businesses, with the leasing segment predicted to increase 13.9% year-on-year until 2028.

Whether you’re a seasoned fleet manager or a new shuttle service owner, understanding the ins and outs of fleet leasing can be an important step in optimizing your operations.
In this article, we’ll discuss what a fleet lease vehicle is, explore how it could help you reduce fleet management costs, and discuss why it might be the solution you’ve been searching for

What Is a Fleet Lease Vehicle?

Fleet lease vehicles are cars, trucks, and other modes of transportation that businesses, government agencies, and organizations lease or rent for work purposes. A collection of vehicles managed together is called a “fleet.” You typically rent them from a fleet management provider under a specific contract that lasts between 24 and 60 months, though shorter leases are sometimes available. Leasing provides a way to use vehicles without the burden of owning them.

Vehicles used in business operations fall under three categories. It’s important to know the differences between them before you look into leasing.

Fleet Vehicles: These are vehicles that you own, manage, or lease for business use. Employees can use them for work purposes only. They come in various body styles—from sedans and hatchbacks to vans and pickup trucks—and can offer certain tax benefits depending on how they’re used.

Commercial Vehicles: Think larger, often heavy-duty trucks. Commercial vehicles are typically used for transporting large groups of people or loads of goods. While they can be fleet vehicles, commercial vehicles aren’t always used as part of a fleet.

Business Vehicles: These are vehicles owned by individuals that are primarily used for business purposes. The tax deductions available on business vehicles largely depend on their usage, ownership specifics, and features. A business vehicle may also be used as a personal vehicle outside of work, and some business vehicles are used as part of a fleet.

How Does a Fleet Lease Work?

A fleet lease is like a long-term rental arrangement for your vehicles. You’re not purchasing them outright but instead paying to use them for a defined period, typically between 24 and 60 months.
At the end of the lease, you usually have the option to return the vehicle, purchase it, or continue with a new lease agreement. You can often purchase a fleet lease vehicle at the end of the contract.

Types of Fleet Leases

Different types of fleet leases offer varying levels of flexibility and financial considerations. Below are the four most common types of fleet leases and what you need to know when choosing between them.

Open-Ended Lease

As the name suggests, open-ended leases are short-term contracts that can be extended monthly. They offer flexibility, making them ideal for businesses uncertain about their long-term vehicle needs.

In an open-ended lease arrangement, the depreciation of the leased vehicle usually affects the monthly cost. This means that as the vehicle’s value decreases over time, you’ll pay less per month. Older vehicles should therefore cost you less to lease.

Closed-End Lease

A closed-end lease is more structured than its open-ended counterpart. You agree to a set lease duration in a closed-end lease, typically two to four years. Once the term ends, you return the vehicle without further obligations, provided you’ve adhered to the mileage limits and wear-and-tear guidelines.

Sale and Leaseback

Imagine you own a fleet but want to free up some capital. In a sale-and-leaseback arrangement, a leasing company purchases your existing fleet, giving you immediate funds. You then lease back these vehicles from the company under an agreed term. It’s a smart approach when you wish to switch from owning to leasing without changing your actual fleet.

Single-Payment Lease

For businesses that have a substantial amount upfront and wish to avoid monthly payments, a single-payment lease is an option. In this model, you pay the entire lease amount upfront. This often results in reduced total costs compared to monthly commitments, thanks to lower interest rates.

7 Benefits of Fleet Lease Vehicles

Here are seven reasons you might want to lease vehicles instead of owning them.

1. Reduced Initial Investment

Leasing vehicles allows you to operate with a smaller initial financial outlay. Unlike purchasing, where substantial upfront costs are incurred, leasing requires minimal initial expense.

2. Predictable Monthly Expenditures

Leasing agreements typically come with fixed monthly payments. This makes budgeting easier, eliminating any surprises or unexpected costs related to the vehicles.

3. Simplified Maintenance Process

One major advantage is that leasing firms typically handle most of the vehicle’s maintenance. This saves your team time and potential additional costs, ensuring your vehicles are always in top condition.

4. Modern Fleet Management Tools

Many fleet leasing agreements include access to state-of-the-art fleet management tools. These tools can help streamline operations, monitor vehicle performance, and ensure efficient use of resources.

5. Fleet Adaptability

As your transportation needs change, leasing provides flexibility. Whether you need to scale up or down, leasing contracts often offer options for fleet adjustments without substantial penalties.

6. Access to the Newest Models

Leasing usually means your fleet can access newer vehicle models with the latest safety and efficiency features. This not only improves your service quality but also enhances your brand image.

7. Potential Tax Benefits

Depending on your jurisdiction, there can be tax incentives associated with leasing versus owning. It’s always wise to consult with a tax professional, but many find leasing offers advantageous tax write-off possibilities.