Choosing between purchasing or renting fleet vehicles is an age-old issue for business owners.
It’s not always easy to gauge which option is the best for the fleet and its stakeholders. In fact, it’s a hugely complicated decision that needs additional information.
However, with the explosion of the trucking industry and the increased prominence of truck safety, several businesses are preferring a fleet lease option.
The reasons they cite are that fleet vehicles are usually well maintained, that the leasing company performs maintenance and repairs, and that fleet leasing is less costly than purchasing.
What Does Fleet Rental Mean?
A fleet rental agreement is an arrangement between a company seeking to secure the fleet’s services and the owner of the fleet.
The company in question pays a premium to use the fleet’s vehicles for a defined duration. It’s basically very close to renting a passenger car as a private citizen.
The major difference, however, is that fleet contracts usually last for no more than three years and include two or more vehicles.
The vehicles range from passenger cars to freight vans, medium-duty trucks, and even semi-trailers.
Company owners and their managers are keen on keeping costs low and revenue high. Thus, they prefer renting fleet vehicles over owning them.
The upfront investment is considerably lower, and servicing, repair, and fleet maintenance may be included.
The business in question enjoys all of the perks of fleet vehicles without incurring any extra costs or liabilities, making it easier to invest in and develop its business.
Common Types Of Fleet Leasing
Companies have historically had a relatively easy option for fleet financing, with decisions based on purchasing or leasing.
Organizations may need a choice that meets their temporary requirement, such as:
- Operate in sectors where there is historically a high turnover
- Recruit people to do project work
- Provide probation staff with a vehicle before their status is verified
Enter short and medium-term rentals.
The idea is relatively basic, with deals aimed at bridging the void between regular rental and long-term supply of vehicles through products that supply vehicles from a few months to one year.
Pricing differs depending on the business model, but usually offers discounts on regular rental rates and is competitive with short-term rental alternatives.
Mid-term renting options are also changing significantly and blurring the lines between short-term and long-term leases, especially as rental companies are trying to accommodate this emerging market.
As a result, customers have begun to use these services, medium-term options in particular, for various needs.
Here, we will take a look at the profound differences between short-term and mid-term rental options so you can choose based on your unique business needs.
Short-Term Rentals For Fleet Vehicles
As with any other rental, a short-term rental is an arrangement with a leasing company to reimburse a portion of the price of an automobile for a specific period.
The difference is that the length of a short-term rental is shorter than the typical rental period and lasts or only a few months (typically shorter than six months).
For a traditional short-term contract, you promise to pay the renting firm a certain amount of money per month to drive up to a certain number of miles, usually set around 15,000 miles per year.
Your monthly payment would depend on many factors, including:
- Negotiated value of the vehicle at the start of the contract
- Finance costs
- Capitalized cost reductions
- The length of the lease period
- Residual value (the vehicle’s estimated value once the lease has ended)
Mid-Term Rentals For Fleet Vehicles
The growing market is also attracting specialist vendors that provide medium-term lease options for terms ranging from 6 to 12 months at rates that are affordable compared to long-term leases.
Also known as mid-term leasing, this concept was introduced in around 2015 and since then has prompted many forward-thinking fleet companies to include it as a part of their white label supply options.
This makes mid-term rentals ideal for a variety of situations, such as:
- When an organization needs to provide its temporary employees or contractors with a vehicle for up to one year
- Fresh hires undergoing probationary periods
- A lead-in automobile for workers awaiting the company car to be shipped
- Vehicles needed during emergencies when you’re off the road owing to repairs and maintenance
- When automobiles are expected to meet rising demands during seasonal or peak periods of operation
- A cost-effective option for an in-house vehicle fleet that meets the obligations of duty of care issues
What makes this concept so enticing is the disparity in market costs between the regular cost of short-term rent and long-term lease, which offers a large gap for a fair bid.
However, this means both retaining vehicles for a longer period in order to benefit from the depreciation curve and enforcing some limits on buyers by selling only available vehicles.
The downside to this, however, is the mix of risks associated with both firms. Potential risks are exacerbated when you have to handle a fleet of different drivers and taking a risk on residual values and maintenance.
Questions To Ask Before Deciding Rental Options For Vehicles
Although it might be economically tempting to venture into a fleet lease arrangement, you must consider many other things too.
Consider these questions to determine which vehicle leasing option is right for your company:
- How long do I want the vehicle for?
- What kind of automobiles do I want, and what purpose will they be used for?
- Does the fleet company have an app to track fleets and monitor vehicle performance?
- How many vehicles do I need?
- How much cargo space do I need?
- How many miles annually do I intend to run the vehicles through?
Most companies that use fleet vehicles have their own, but that doesn’t mean that every corporation has the right option. Whether to hire or purchase fleet vehicles is always a strictly financial decision.
Possessing or owning a vehicle means managing its operating expenses, initial capital, depreciation, service, maintenance, repair, and eventual disposal.
For a full-service fleet contract, however, the lessor does not have to worry about any of these variables.
Moreover, fleet leasing is a cheaper alternative to buying, leaving lessees with more money to run and expand their businesses.
Now that you know what short-term and mid-term rentals are, treat the above as a benchmark while needing to lease a fleet to find yourself the option that best fits your needs.