Ultimate Guide to Company Car Leasing

A company car lease allows you to lease a vehicle under your business’ name. Company car leases are similar to an individual lease, except that leasing companies usually expect you to use the car for business purposes exclusively.  

Companies can lease new and used vehicles for business. Most leasing companies require a guarantor. Many business owners sign as guarantors on the company car lease, committing to the monthly lease payments should the business default. 

While most individual leases are closed-end lease deals, company car leases can also be open-ended. Open-ended lease options remove mileage restrictions but come with shorter terms. Because you’re only leasing the vehicle briefly, you’re also responsible for depreciation. 

Closed-end leases offer longer terms and no fees for depreciation. The lease contains mileage restrictions and steep fines for excessive mileage. Most closed-end leases are more affordable than open-ended leases. If you plan on driving long distances, consider an open-ended lease. 

Company car lease terms to know

As you review the lease for your new company car(s), you may encounter several unfamiliar terms. Take a moment to familiarize yourself with the following company car lease terms before you sign on the dotted line: 

• Capitalized cost: The vehicle's selling price appears on the lease as the “capitalized cost.” 
• Capitalized cost reduction: Down payments, trade-in values, and any other incentives comprise capitalized cost reductions, which reduce the selling price of the vehicle. 
• Depreciation: Cars lose value over time, and this number expresses the difference between the vehicle's value at the beginning and end of the lease. 
• Drive-off fees: Before driving your lease off the lot, you must pay these fees. These fees may include taxes, deposits, and acquisition fees. 
• Money factor: The best car lease deals offer a low money factor that translates to a competitive interest rate. Money factors are expressed as decimals, which you can convert to interest rates with a simple formula.  
• Residual value: This number describes the appraised value of a vehicle after the lease has ended. It includes depreciation and often determines the purchase price should the lessee decide to purchase the car after the lease ends.  

Many of the same leasing terms apply to both personal and company car leases. Understanding these terms can help you identify areas for negotiation and assist you in finding a better lease from the get-go. 

What are the benefits of putting a car in your business name?

Placing a company car lease in your business name separates that asset from your personal assets. This limits liability should the business fail. On a more positive note, obtaining a company car lease can help your business grow its credit score and contribute to its credit report. As with personal credit scores, higher business credit scores open the door to more favorable loan terms and interest rates. 

When you apply to lease a company car, you must submit an application similar to a personal lease. However, you must submit specific documentation concerning the business’ financials. These may include the business’ credit report, financial statements, and previous tax returns. 

Leasing companies may also inquire about how the business will use the leased vehicles and how many people you expect to drive the cars. If the leasing company requires a guarantor, you will likely need to submit your personal credit report. Additional leasing requirements vary between leasing companies. 

Leasing a car for your business mirrors obtaining a personal lease. Here are the basic steps required to obtain a company car lease. 

1. Determine what type of vehicle you need

Will you prioritize cargo or passenger capacity? Should the vehicle have all-wheel drive for hazardous driving conditions? How many miles will it be driven each year? Distinguishing between types of cars can also help narrow down your search. 

2. Contact dealerships in your area

Ask to speak to the business sales division. Explain that you are looking to lease a car for your business and inquire about what types of vehicles are available. Be sure to ask about leasing application requirements and any special deals. 

3. Comparison shop lease deals 

Determine which deals offer your business the most benefits. Visit a few dealerships to examine the quality and availability of their vehicles. The condition of the cars available for lease can play a huge part in your final decision, especially if your business and brand are built on a particular persona.

4. Select a leasing company and complete the application 

Work with a leasing representative to submit any necessary documentation. If the leasing company requires a guarantor, determine if you or someone else will be the one to guarantee the lease.

5. Obtain commercial auto insurance

This specialized car insurance protects company vehicles specifically and is separate from a business owner’s personal policy. The lease typically includes GAP insurance, but you must obtain the minimum insurance required by the state and the leasing company. 

6. Take possession of the lease

Create a logbook or digital file to account for any expenses related to your new company car lease. Advise anyone else who might drive the vehicle of the lease restrictions, mainly mileage. 

Throughout the process, you should consult your accountant to determine how to report any tax deductions from your lease. A car lease tax deduction can help reduce your tax burden for the life of the lease. 

You can write off part of your company car lease payments if you are a business owner or are self-employed. However, you can only write off expenses from business use. Regarding business miles vs. commuting miles, you cannot claim commuting miles as a business expense. 

The Internal Revenue Service (IRS) requires that you take either the standard mileage rate or the actual expenses as your tax deduction. Note that you must choose the same tax deduction method for the life of the lease, so choose carefully in the first year. You can learn more about these two methods' differences on the IRS website, Topic Number 510: Business Use of Car. 

Leasing a company car has advantages and disadvantages for you and your business. Take the following into account as you consider a company car lease. 

Pros:

• It’s often more affordable to lease a company car than purchase one 
• Budget for predictable monthly payments
• The leasing company handles any repairs or maintenance 
• You aren’t on the hook for depreciation costs
• You can deduct part of your lease payments for tax benefits
• Update your fleet every few years 
• Helps to build business credit and contributes to the business’ credit report
• Separates personal and business assets to limit liability

Cons:

• Mileage restrictions limit how far you can drive each year
• Most lease agreements prevent you from modifying the vehicle, including stickers or decals
• The business doesn’t own the car at the end of the lease and loses any equity 
• Excessive wear and tear, common for company vehicles, can result in stiff penalties
• Leasing companies may require additional insurance coverage beyond the state minimum requirements, costing you more in monthly premiums 
• Breaking the lease early on can result in early termination fees and additional fines  

Company car leases can help business owners afford a company vehicle, especially when cash flow is tight. However, leasing a company vehicle can come with several restrictions, including mileage limits, that can put your company in a bind. In addition, you’ll lose any equity you’ve built up in the company car once the lease ends. 

While open-ended car leases can help lift mileage restrictions, they often come with higher monthly payments. One more popular and affordable alternative to leasing a company car is subscribing to one instead. Car subscriptions like those offered by FINN can accommodate businesses with the vehicles they need to get the job done right. 

FINN offers 6 and 12-month subscription terms, with no down payment required. You can depend on rapid delivery and real-time availability. A dedicated fleet advisor works with you to determine your needs, as FINN handles all registration, maintenance, taxes, and repairs. FINN serves over 2,000 business clients and offsets CO2 emissions to support your company’s sustainability goals.