Lease agreements: Tips, questions, and experiences

Charles Ramos7 said:You can find all the details on any leasing company's website.
There are a few other factors you should weigh up besides what you mentioned:

-if maintaining a high credit score for the business is a priority, operating leases might be the way to go.
-from a tax standpoint, financing is often better due to how VAT works.
-and so on...

Honestly, your best bet is to run this by your accountant. At my company, we have one vehicle on a finance lease and another that we just paid off upfront. We’ve been happiest with the outright purchase since we don't have to deal with interest or late fees.

Just try playing around without collision insurance... Once you're forced to file a claim when you aren't even at fault—only to realize the insurance provider is being difficult about paying out the damage—that's when you'll truly understand why having coverage is worth every penny.

Andrew Booth29 said:Just try playing around without collision insurance... Once you're forced to file a claim when you aren't even at fault—only to realize the insurance provider is being difficult about paying out the damage—that's when you'll truly understand why having coverage is worth every penny.

Does anyone in their right mind actually use their collision coverage if they didn't cause the accident?😕

Charles Ramos7 said:Does anyone in their right mind actually use their collision coverage if they didn't cause the accident?😕

So, you’ve got an insurance company refusing to pay out for someone else's mistake? Well, that’s just the way the cookie crumbles, isn't it? You can certainly choose to drag them through the legal wringer—we're talking five, maybe even ten years of endless litigation—but if you're looking for a real alternative to that headache, I'm not sure there is one. It’s a choice between losing the money or losing your mind in court. What do you think? Is the fight actually worth the decade of stress? 😁

I always carry full coverage. These days I’m driving my own car outright since I paid off the loan (and they didn't even require collision coverage once the debt was gone)😲. There is just no way I’m risking a vehicle worth $15k, let alone something more expensive.

Think about it: some idiot hits you in a parking lot and slides right into your bumper... we’ve been there ourselves. If you don't have collision insurance, you're basically just paying for the privilege of being screwed over. We ended up taking the car to a top-tier mechanic, he handed us a massive bill, and that was that.

I take the extra coverage every single time. So, does anyone here have actual experience who can tell me what makes more sense besides just paying cash? Also, is it better to opt for a 20%, 30%, or 40% deductible? Since it isn't technically an expense but more like a deposit, it doesn't hit the bottom line directly.
How should I handle that from an accounting standpoint? If I pay the deductible through the business account, does it essentially function as pure profit? Or is it smarter to keep a cash deposit separate from the business—just personal funds—or perhaps document it as a loan that gets repaid at the end of the year??

George Wilson4 said:I always carry full coverage. These days I’m driving my own car outright since I paid off the loan (and they didn't even require collision coverage once the debt was gone)😲. There is just no way I’m risking a vehicle worth $15k, let alone something more expensive.

Think about it: some idiot hits you in a parking lot and slides right into your bumper... we’ve been there ourselves. If you don't have collision insurance, you're basically just paying for the privilege of being screwed over. We ended up taking the car to a top-tier mechanic, he handed us a massive bill, and that was that.

I take the extra coverage every single time. So, does anyone here have actual experience who can tell me what makes more sense besides just paying cash? Also, is it better to opt for a 20%, 30%, or 40% deductible? Since it isn't technically an expense but more like a deposit, it doesn't hit the bottom line directly.
How should I handle that from an accounting standpoint? If I pay the deductible through the business account, does it essentially function as pure profit? Or is it smarter to keep a cash deposit separate from the business—just personal funds—or perhaps document it as a loan that gets repaid at the end of the year??

If you've got the cash sitting in the business account, I don't really see why you'd bother writing up a loan for the deposit, since everything boils down to the final balance anyway. If there's nothing left, then whatever. As for a cash deposit for Leasing, I'm not sure, I don't think they'd even do that. Mostly, I just know that to get approved for Leasing, you need your business paperwork in order, be profitable, and all that stuff... With financial Leasing, the deposit is basically your down payment and part of the car's price. It's true, the deposit shows up as profit, but if you buy the car at the start of the year and use accelerated depreciation (like 40%), then it might be worth it. I think the minimum deposit is usually 20%. And if you go the route of writing the company a loan, that definitely seems like a smart move.
I'm not too sure about operating leases; we always kind of avoided those. Not sure why. It's basically just a long-term rental, whereas financial leasing is more like an actual loan.

You make a fair point, though I’m running my own numbers here. I have some cash set aside specifically for a down payment on a vehicle, but when you look at the bottom line, the math ends up being pretty much identical. For me, an operating lease might actually be the smarter move for our credit profile. If my primary company acts as a guarantor for my other firm when we go to acquire a boat through an operating lease, having that guarantee in place should mean the new entity needs to put down a much smaller deposit.

That said, I’m still on the fence about applying that same logic to a car. It starts feeling a bit too much like a standard rental, especially considering our typical mileage—we usually clock in around 15,000 to 18,000 miles a year—so I’m just not entirely sure.

I honestly don't know how much a finance lease would actually weigh down the credit rating of the smaller firm.

George Wilson4 said:You make a fair point, though I’m running my own numbers here. I have some cash set aside specifically for a down payment on a vehicle, but when you look at the bottom line, the math ends up being pretty much identical. For me, an operating lease might actually be the smarter move for our credit profile. If my primary company acts as a guarantor for my other firm when we go to acquire a boat through an operating lease, having that guarantee in place should mean the new entity needs to put down a much smaller deposit.

That said, I’m still on the fence about applying that same logic to a car. It starts feeling a bit too much like a standard rental, especially considering our typical mileage—we usually clock in around 15,000 to 18,000 miles a year—so I’m just not entirely sure.

I honestly don't know how much a finance lease would actually weigh down the credit rating of the smaller firm.

Look, honestly, the best move is just to head down to the dealership and ask for quotes on both operating and finance Leasing. Then you can actually compare them properly. That's literally their job, and nobody is forcing you to sign anything later. As far as I know, most dealerships have connections with Leasing companies, so you should be able to get a quote for both the car and the financing right then and there.
As for the credit side of things, a finance lease hits your numbers pretty hard. That’s why I’m telling you to get those quotes. Take the monthly payment, subtract the interest (since that counts as a business expense), and multiply by 12—that's the amount of cash you need to have sitting there to cover all the payments out of your net profit. But then again, you could potentially write off the car using accelerated depreciation, though you might end up paying 30% in taxes on personal use (if it's a personal vehicle?)... man, what a headache. There is just so much to crunch. Basically, if the company has the cash, you could just buy it outright and skip the interest entirely. If the business can swing it—meaning they don't actually need that capital for day-to-day operations—then that’s probably the smartest way to go. I think you’re gonna have to sit down and actually map this stuff out on paper, because trying to figure out what's better for a specific business just by guessing is tough. Good luck.

I actually took care of that quite a while ago. Everyone seems to have their own little theory about it—everyone’s out here giving "expert" advice on operations, though there are definitely some nuances to consider. It isn't really the credit score for a car that worries me; that wouldn't be much of an issue. The real concern is securing financing for a vessel, given how much more expensive those are compared to anything else..
That said, you’re probably better off sitting down with your own accountant. They'll have the best handle on the specific intricacies of your business's books..

Anyway, thanks a lot for the help.

I’ve got a quick question for the group—when you’re doing a financial Leasing deal as an individual, do you actually become the owner once that very last payment clears? Or is there some hidden catch where I have to shell out even more cash just to officially take title to the car? Is finishing the payment schedule really enough, or am I in for another surprise at the finish line? Thanks! 🙂

I think that’s really all there is to it. There aren't any more payments lurking around the corner. With an operating lease, you just cover the sales tax on the buyout if you want to actually own the asset, and with a standard finance lease, the final installment is simply the final installment.

When you're dealing with financial Leasing, it doesn't matter if you're just an individual or running a whole corporation, once that final payment hits, you've still got to cough up this extra buyout fee... it usually runs about $165 or maybe even $333 depending on which big outfit like Chase or Wells Fargo you're signed with. You really need to dig through your contract because they’re legally required to lay it all out there.

Now, if you're looking at operating leases, the deal is totally different because the lessee isn't actually going to own the car at the end of the day... instead, they have to—or can choose to—designate some third party to buy the vehicle from the Leasing company, and then that person buys it from them. It's a bit more of a headache to navigate, but honestly, it's doable if you play your cards right.

cosmicotter12 said:When you're dealing with financial Leasing, it doesn't matter if you're just an individual or running a whole corporation, once that final payment hits, you've still got to cough up this extra buyout fee... it usually runs about $165 or maybe even $333 depending on which big outfit like Chase or Wells Fargo you're signed with. You really need to dig through your contract because they’re legally required to lay it all out there.

Now, if you're looking at operating leases, the deal is totally different because the lessee isn't actually going to own the car at the end of the day... instead, they have to—or can choose to—designate some third party to buy the vehicle from the Leasing company, and then that person buys it from them. It's a bit more of a headache to navigate, but honestly, it's doable if you play your cards right.

Is this a universal rule across all leasing companies? I've sat in on a few meetings where bankers were pitching deals to firms for luxury yachts, and regarding operating leases, they insisted that the buyout was a non-issue—you just cover the sales tax on the equity portion and you're set. I am absolutely certain about this because I was taking notes at the time.

Look, I work in Leasing, so you can take that to the bank... it's 100% solid.

If you want, I can sit down later and break down the actual differences between operating and capital leases for you...

Come on, people. I decided to start a new thread on this because, even after sitting through meetings with three different Leasing companies, there are still some major gray areas.

FINANCIAL Leasing (FedEx)

When you're dealing with FedEx, they usually look for a down payment somewhere between 20% and 30%, though it really depends on what kind of gear you're picking up—whether it’s brand new or some used equipment... basically, the more cash you throw down upfront, the lower your monthly payments are gonna be. And honestly, there isn't really a cap on how much you can put down if you want to keep those installments low...

If you're running a corporation, the leasing company hands over an R1 form so you can write off the sales tax immediately, but if you're just operating as a small business or a sole proprietorship, you'll have to write off that sales tax bit by bit through your monthly payments...
The asset being financed gets rolled into your long-term assets, which means you get to claim depreciation on it too...

Once you wrap up the FedEx term, you just gotta cough up about $160 or $333 a buyout fee, and then boom, the whole thing is yours...

OPERATIONAL Leasing

So, with Operational Leasing, the Leasing company is gonna ask you for a security deposit upfront, and once the contract finally wraps up, you get that money back... usually they’re looking at about 20% as a deposit, though if you're pushing the limits on an operational deal, they might demand up to 33%...

As for the sales tax, it just gets written off monthly through your installments, and since the vehicle technically stays on the Leasing company's books as a long-term asset, you don't get to claim depreciation on it...

You also have to hammer out the buyout value at the start of the deal, which can range anywhere from roughly 20% to 80% depending on what kind of deal you can swing with the Leasing firm...
Usually, those higher buyout percentages are reserved for dealership inventory or showroom models...

The big thing to remember is that once an operational lease ends, the person who was using the car doesn't actually get to own it...

There are basically three ways this plays out (though it really depends on which Leasing company you're dealing with):
- you can just hand the keys back to the Leasing company and let them deal with selling it...
- you can go out and hunt for a new buyer yourself, and then sell it to them at whatever price—higher, lower, or even equal to—the Leasing company is asking for...
basically just playing middleman...
- or you find a new buyer, that new guy buys the car directly from the Leasing company, and then he turns around and sells it to you...
which sounds like a massive headache...

And with those last two options, there's always a bunch of different scenarios regarding that security deposit, like whether you actually want them to cut you a check for it or not...

And look, you can't just claim one type of Leasing is better than the rest, or say one setup is strictly for small businesses while the other is for big corporations... it's not that simple.

Picking the right kind of Leasing really just comes down to what you're actually trying to pull off in the end. You’ve gotta weigh all the factors like sales tax, your depreciation costs, and who actually holds the title at the end of the day.

Plus, there's this huge distinction between taking out a loan and going with Leasing... one major thing is that Leasing doesn't even show up as a debt on your credit profile the way a standard loan does.

Could someone maybe give me a bit more clarity on how operating leases actually work?

I just got an offer where the buyout amount is roughly $5000, which means after five years, I’d have to shell out more than $1000 just to own the car. But from what I can tell, I wouldn't even be able to take ownership myself—it looks like I'd need to find some third party to buy it. So, I guess I'm wondering if there's anything in the contract about having first right of refusal or something similar, because honestly, it doesn't make any sense for me to just keep paying lease fees only for everything to expire, especially since I'm just an individual consumer.

Maybe taking out a loan would be a better move, though if I'm looking at my budget, a standard auto loan seems like it might actually be more cost-effective.

Thanks for the help.

If you ask me—and honestly, plenty of my individual clients feel the same way—leasing just isn't worth it for regular people... at the end of the day, whether you go with a lease or just take out a standard loan is entirely up to you and your own math.

Under the current leasing law, there’s actually no such thing as gaining ownership outright...

According to the leasing law NN 12/06, Article 5, "The business of operating leases is defined as a legal transaction where the lessee pays the lessor a specific fee during the term of use, which doesn't necessarily have to reflect the total value of the asset; the lessor handles all depreciation costs, and the lessee doesn't have a guaranteed purchase option, though usage can be terminated under certain conditions."

Every single leasing company has its own set of fine print (you know, those tiny little details hidden in the contract), so my best advice is to actually read them... At the firm where I work, the client actually has the right to hand-pick a new buyer for the asset, which could be a spouse, a parent, a kid, a sibling, or even a business entity (like a local dealership that buys the car back from the leasing company and then sells it back to you for a nominal fee).

Let me bump this thread back up for a second...

A few days ago, my company pulled the trigger on a finance lease for a new vehicle.
The total price including sales tax came to $69850. We had to put down a 30% down payment, and the lease term is set for one year, plain and simple.

The company received an invoice for the deposit and the first installment, which had to be paid together, totaling $26375. That includes $89 in sales tax, which I’m going to write off immediately...

Now, there's something else I'm wondering about (sorry, I haven't asked anyone yet, so it's been bugging me, so I figured I'd ask here—someone surely knows the deal...).

Am I going to get one single massive invoice for the whole car (minus the deposit), or will I receive individual invoices for every single monthly payment showing the sales tax, interest, and the tax on that interest?

Also, I've got another question. I was digging around online and found this:
Basically, the law states that all expenses for passenger vehicles are 100% tax-deductible if they are used to generate income.
The trick is that the legislature hasn't actually specified how much income needs to be generated or exactly how much the car needs to be driven for business versus personal use to qualify for that 100% deduction.
So, you lease a car to an employee via a management decision (for example, Goldman Sachs approves an executive to use a company car for personal use from April 15th to April 17th for route X covering Y miles). You take that mileage and multiply it by $0.67 (that $2 figure includes sales tax, so you have to strip it out rather than add it) and then report that amount to them as taxable income. Essentially, you pay all the standard payroll taxes and withholdings based on
.
Once you've established that income tied to the vehicle, all the costs become fully deductible. No disallowed sales tax, no extra corporate income tax on top of the 30%+ margin.

It's a neat little loophole in the tax code.
I've double-checked this with several sources—auditors, tax consultants, and even some pretty decent IRS agents.

So, from what I gather, I just lease the car to the director, treat it as supplemental income, pay the required payroll taxes on that amount, and call it a day. From there, you just keep running the expenses through.