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Business leasing: the pros and cons

January 10, 2024

What is Operational Lease?

Let’s start with Operational Lease. What exactly does that mean? The leasing company remains the owner of the car in the case of Operational Lease, throughout the lease period. So after the lease ends, you don’t own the car. You rent the car for the agreed upon term and pay a fixed monthly fee for its use. Costs such as maintenance and repairs are included in the lease amount, if desired. In fact, you may see Operational Lease as the “private lease” for the business driver.

Net Operational Lease and Full Operational Lease

There is a choice of “net” or “full” Operational Lease. With Net Operational Lease, operational matters such as repair, maintenance, insurance, breakdown service and replacement transportation are in-house. So you pay less money per month in this case. With Full Operational Lease, however, all additional costs such as repairs, maintenance, taxes and insurance are included in the lease rate.

What is Financial Lease?

With Financial Lease, the construction is somewhat different because once all payments are made, the car is fully owned by the company. So think of Financial Lease primarily as a kind of loan that you repay in monthly installments. With Financial Lease, the value of the leased car is on the company balance sheet, i.e., the company economically owns the car. Interest on the amount of money borrowed is deductible from profits. You may pay off the outstanding “debt” early with Financial Lease, but chances are the leasing company will charge additional fees.

Financial Lease and Final Terms

You can also opt for a final installment with Financial Lease. In that case, you pay a set residual amount upfront at the end of the contract term. You pay no repayment on this amount during the term of the contract, only interest. Why choose this? Simple: with a final installment, the monthly amount is lower.

Advantages and disadvantages of Financial Lease and Operational Lease

One thing is certain: financing a car for business is easy to arrange, but it is important to first educate yourself about the advantages and disadvantages of Financial Lease and Operational Lease. We list them below.

Advantages Financial Lease

Disadvantages Financial Lease

Advantages Operational Lease

Disadvantages Operational Lease

Differences between Financial Lease and Operational Lease

Finally, a handy overview of the differences between Financial Lease and Operational Lease.

  Financial Lease Operational Lease
Fixed monthly fee Yes Yes
Owner vehicle Yes No
New or used? New and used New
Available for passenger cars Yes Yes
Available for commercial vehicles Yes Yes
Duration of contract 12 to 72 months* 12 to 72 months*
Flexible cancellation Yes* No*
Down payment Optional No
Final term Optional No
Insurance included No Yes
Including road tax No Yes
Including service and maintenance No (co-financing possible) Yes
Breakdown assistance Yes Yes
Depreciation vehicle Yes No

*different by provider