A car on an operating lease promises low monthly costs and no hassle while you use it. Is that really true? What are the advantages and disadvantages of an operating lease? What if you damage the car? Can you buy it at the end of the lease if you have grown used to it? This article answers all of these questions.
Tip: Also read our article on SWOT analysis.
What an operating lease is
An operating lease is a vehicle rental. The contract is usually signed for 2 to 3 years. Throughout that time, the leasing company (the lessor) owns the vehicle and you only borrow the car to use it. The lessor arranges regular servicing, insurance and statutory payments. You do not have to deal with anything. The instalments are set so that over the whole period of use you pay for the expected wear and tear of the vehicle. When the lease ends, you hand the vehicle back and, if you are interested, you have a right of first refusal to buy it.
Who an operating lease is for
Cars on operating leases are used mainly by companies. They get new vehicles and none of the related hassle. If something unexpected happens, responsibility passes to the driver, that is, the company employee, who pays for the extra damage. This makes an operating lease very good value for companies. However, it is not only for companies. If you are a private individual who likes driving new cars and you do not want the hassle of selling a used car every 2 years, an operating lease can be a solution for you too.
Advantages of an operating lease
As mentioned above, you do not have to deal with the various types of insurance, servicing, road tax or other fees. You get a new car for an agreed monthly instalment, which is usually lower than the instalment on a loan. From an accounting point of view, you do not have to depreciate the car, as the lessor takes care of that. At the same time, the monthly rent is a tax-deductible expense.
Operating leases are often taken out by people who are not particularly interested in cars and use a car mainly to get around. For these people, an operating lease can be a great choice, because all you really need to do is drive and there is little else to worry about. The leasing company will remind you of any obligations in good time and firmly.
Disadvantages of an operating lease
You only borrow the car, and the contract only allows for normal wear and tear. If the car suffers any other damage, expect to pay for it. There is also usually an excess of 5 to 10% on comprehensive car insurance. Before you return the car, it is important to clean off all stains and get it into the best possible condition. You will pay for every larger scratch and stain. The contract also states the maximum number of kilometres you can drive per year. This is usually 15,000 to 20,000 km. You will be charged a few crowns for every extra kilometre. It is also common that only you are allowed to drive the car.
What to watch out for
“The cheapest operating lease” is not always the cheapest. The monthly instalment depends on what it includes. For example, the lowest instalments may not include winter tyres, which you will have to pay for separately. The servicing benefit may also be limited, and you may have to pay for some inspections yourself. So do not be tempted by the lowest instalment, and do your sums carefully instead. Be very careful when returning the car too, as the lessor will inspect it very thoroughly when taking it back.
An operating lease makes sense, but not necessarily for everyone. That is why it is a good idea to do your sums carefully and compare whether a leased car or a standard loan is better value for you.
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