What Is An Operating Lease & How Does It Work?

Operating leases are popular with businesses as they allow them to fund assets such as cars or vans without having to worry about buying the vehicle when the lease ends.

Companies like Toyota Fleet Management, who provide the lease, will also own the vehicle throughout the whole term of the lease, keeping hold of the title so that you will only ever lease it from them. You then simply choose the term of the lease (from one year up to five) and the amount of kilometres that you estimate you will travel. Because an operating lease enables 100% financing and a set monthly cost, there is no capital outlay.

You really are borrowing a car without the stress of buying. Think of it as a rental agreement. At the end of the term, you give the vehicle back to the owners – in good condition compliant with our fair wear and tear guidelines – and then the rental ends. You don’t have to worry about residual payments being made which makes for a simple transaction.

An operating lease is ideally suited to sole traders and companies if they are planning to use the vehicle mainly for business use; it is a particularly practical option where they expect to cover many kilometres. Finally, the operating lease agreement provided will clearly set out the full terms of the transaction.

Let’s look at the benefits of an operating lease.

Benefits of operating leases

  • Lease payments are made over a fixed lease term i.e. the lease period
  • Payments made are all tax deductible
  • A capital outlay is not required
  • Minimal risk as the vehicle is not owned by you.
  • Where a fully maintained operating lease is in place, you don’t need to worry about maintaining the vehicle as this is included in the price you pay

In summary

Overall, making use of an operating lease makes a lot of sense, as budgeting or cash flow management can be made easier. You know in advance that you are going to receive just one monthly invoice, taking account of the rental, maintenance and running costs.

In addition, do not forget that at the end of the lease, you do not have to hand back the vehicle (although you may decide to). You may decide to purchase it, extend the lease or simply take out a lease on a new vehicle. At all times, the choice is yours.

If an operating lease sounds like it could be the solution for your business, find out more about the options available from Toyota Fleet Management here.

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