Commercial Leases vs. Retail Consumer Leases for Fleets

When you’re considering adding a new vehicle to your fleet, you have several decisions to make. The first is whether you want to buy or lease a vehicle. If you’ve decided to lease, then you have another choice.

Should you go with a commercial lease, or is a consumer lease fine?

While this might seem like an easy choice, there are actually quite a few nuances you’ll want to pay attention to before you decide. So, let’s break it down and see if there’s a clear answer or if you have to make the decision for yourself.

All About Retail Leases

Retail leases, consumer leases, and dealer leases all refer to essentially the same thing. These are leases for a vehicle that are written by a car and truck dealership, and are finances through a bank. The bank sets the value of the vehicle according to their actuarial tables and metrics. Alternatively, the lease may be financed through a captive funding company affiliated with the auto manufacturer, and sets the value of the vehicle according to the vehicle’s MSRP.

Retail leases are common throughout the country, for both commercial vehicles and consumer vehicles. The benefits they offer – like a guaranteed newer vehicle, maintenance handled by a dealership, and a typically lower cost than buying a vehicle through bank financing – make them an attractive option for certain demographics of people.

But what about for fleets? Retail leases aren’t necessarily uncommon. For example, a company that sends sales and account reps out on in-person sales calls might lease a handful of high-end sedans for their reps to drive to lend them an air of luxury and style. 

On the other hand, you typically can’t find larger vehicles available for retail leases. The largest you commonly find is a box truck; semis, buses, dump trucks, and other utility vehicles are rarely found in commercial leasing or through commercial dealers. That’s not to say it’s not possible, it’s just less common.

Consumer leases have a few drawbacks, both compared to purchasing a vehicle on its own and to commercial leases. 

First of all, they tend to have fixed lease terms, usually ranging from two to four years. You’re generally required to hang onto the vehicle for that time and usually have to give it up after the period elapses, unless you want to then purchase it or sign another lease for it.

Another consideration is mileage limits. Leases, in general, often have mileage limits, and that’s true of both retail and commercial leases. However, retail leases tend to have lower mileage limits because they’re aimed at the typical retail consumer. Someone who primarily uses their vehicle to commute to and from work, to drive on errands, and maybe the occasional trip to a nearby city is going to stay within the limits. On the other hand, if you’re a working fleet and your drivers or reps are heading all over the city every day, having a cap of 10,000 miles per year can put a serious damper on the ability to travel.

When you hand a vehicle back, any additional mileage, as well as undue wear and tear, is evaluated. If excessive use is found, you’re often liable for a penalty payment. 

All About Commercial Leases

Commercial leases, also called fleet leases or corporate leases, are a different kind of lease. To make things more complicated, there are also two kinds of fleet leases.

The first is the open-ended lease. Open-ended leases are not fixed term. You lease a vehicle and you use it to whatever extent you need to, for however long you need to. When you no longer need the vehicle, you return it, and its condition, mileage, and other factors are evaluated. A fair market value is assessed, and that’s that.

Closed-ended leases, meanwhile, are a lot more like retail leases. The difference is that all of their terms tend to be more open and geared towards, well, fleet usage. You’re expecting to use the vehicle more frequently and for more miles, so the caps are higher. 

Fleet leases differ as well by who writes and finances them. They are generally written by fleet leasing companies who deal specifically with fleets and don’t handle consumer leases. They are also often financed by a bank or an affiliated monetary firm, but with the expectation that the fleet leasing company will manage the details. 

There are a few differences that are worth pointing out for fleet leases compared to consumer leases.

For one thing, you generally don’t have to put a down payment on a fleet lease. Retail leases generally require some portion of the value of the vehicle up-front as a down payment due at signing. Commercial leases do not. 

A big reason for this is because commercial leases also often roll together numerous vehicles. The lease itself is a single entity that encompasses more than one vehicle, and vehicles can be added and removed from it, adjusting terms and pricing depending on what comes and goes.

Down payments for retail leases are a measure of intent and a sort of security deposit. They help prevent exploitation of leases from people who would simply take a vehicle and run. Since fleet leases are more serious ongoing relationships, something as small as a down payment isn’t really necessary.

Mileage limits are also an important difference. In fleet leasing, the expectation is that the vehicles will see a lot of use, possibly even national-scale long-haul trucking. Putting a cap on mileage only serves to make fleets look for a different leasing company. If a fleet lease has a mileage limit, it’s usually a closed-ended lease, and the mileage limit is so high that it is nearly impossible to reach anyway, so it’s functionally unlimited.

There are other differences as well, but we can more directly compare them if we go factor by factor.

Comparing Retail and Fleet Leases Directly

Now let’s run down some of the other important elements you’ll need to consider with leasing and discuss which option is more likely to be better.

Billing and Paperwork

First up is simply the administration of leases.

Retail leases are individual vehicle deals. If a person wants to lease a second car, they generally have to sign a second lease with a new down payment, new terms, new deals, the whole nine yards. That’s fine for one lease, or maybe two for a family that needs two vehicles, but it can quickly get out of hand if you’re trying to lease half a dozen, a dozen, or more vehicles for a citywide service. 

A fleet has a lot of moving parts, and there are fleet management platforms available to help bear a lot of the burden. The problem is that there aren’t really easy ways to manage a flurry of disparate leases. You end up having to handle the paperwork of multiple contracts, possibly with multiple services and multiple providers and dealerships, and keep track of which vehicles have which limitations and which are nearing their limits.

In other words, it becomes an immense hassle above and beyond all of the normal management of a fleet. It’s a ton of work, and that’s just to have vehicles in your fleet! The more vehicles you add on active leases, the more work it is, until it’s no longer sustainable.

Compare this to fleet leasing. Fleet leasing allows all of this to be bundled into a single contract. There’s some negotiation and paperwork to be done when you want to add a new vehicle to the lease or remove one from the lease, but it’s a lot easier to do, and it doesn’t disrupt the contract or add multiple bills to handle or anything else. It’s mercifully simple, infinitely easier, and vastly less likely to let a bill or detail fall through the cracks.

Overall Cost

Sooner or later, everything comes back to money.

Immediately, one significant cost will jump out at you. Fleet leases don’t have down payments, primarily because they’re a single rolling contract that doesn’t need a new initiation each time a new vehicle is added. There may be one initial down payment when you first get it set up, but from there, it carries over.

Retail leases, meanwhile, need a new down payment every time a new vehicle is added to the fleet. It’s a lot less palatable to add new vehicles to the fleet when you have to drum up $2,000 cash every time, right?

There are other associated costs as well.

• Mileage overage fees. To get the best pricing for retail leases, you usually need to agree to high fees, and a fleet is much more likely to go over mileage caps than a consumer. Fleet leases, meanwhile, often don’t have mileage caps at all and thus don’t have mileage fees.
• Return and repair fees. Fleet leases often don’t have usage fees baked into them, and the vehicle is assessed at market value when returned to determine what return there will be. Retail leases, at best, even out and, at worst, levy additional fees when a vehicle is returned.
• Early termination fees. If you sign a retail lease for two years and find that you don’t need the vehicle after one year has passed, you can return it, but it usually causes you to break the lease, often forfeiting any deposit and commonly incurring additional fees. Fleet leases don’t have these fees either, especially open-ended leases.

From there, the biggest concern is often just the monthly fee you pay to maintain the lease. This is harder to call better from one side or the other because it heavily depends on the specific vehicles. Leasing a tricked-out semi is going to be way more expensive than a high-end consumer vehicle, but leasing an older, lower-trim-level commercial vehicle can potentially be cheaper than a new model, all the bells and whistles, high-trim consumer vehicle. It’s a matter of balancing what you want with what you can afford, and that goes well beyond the scope of this post.

Picking the Right Lease

So, how do you determine which kind of lease you need?

One thing to consider is if there are any extra benefits to a fleet lease, even for what would normally be a consumer vehicle. Often, fleet leases might include a different kind of maintenance contract, insurance benefits, roadside assistance, and other benefits. Retail leases do not. If you expect your drivers to be able to make use of any of those benefits, a fleet lease can be better.

Another consideration is the number of vehicles you’re leasing. If you typically purchase vehicles and just want to lease a few to handle a spike in demand, using retail leases might not be a bad thing. On the other hand, if you’re already rolling a fleet lease, adding more vehicles to it might be better across the board than adding a retail lease to the deal.

Sometimes, though, you can take advantage of a retail lease even as a fleet and even if you have an ongoing fleet lease. For example, it might cost more to add a vehicle to a fleet lease than to get a retail lease for it if you’re willing to accept strict limits, put down a high down payment, and keep its use to a minimum. That might be the case if, for example, you just need one luxury car for your regional chair to take to business meetings, which otherwise doesn’t see much use.

In the end, though, it all comes down to what makes the most sense for your fleet. Every fleet is different, and sometimes, you might prefer retail leases over fleet leases. For that matter, you may have a hybrid system where some vehicles are financed, some are leased, and others are on another kind of rental contract. Just do what works best for you.

Regardless of how you have the vehicles in your possession, there’s a good chance you’re going to need maintenance at some point. That’s where we come in. At Epika, we maintain a national network of service providers that can help diagnose and repair, perform maintenance, and keep all of your fleet vehicles in peak condition. All you need to do is reach out and get started.

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