Probably, your car lease is close to expiry, and you're still undecided whether to renew it. Maybe the uncertainties of the current economic environment have gotten your feet cold, and you're hesitating to commit to another long-term obligation. For this reason, you could be wondering whether a car lease can be extended.
Indeed, it's possible to extend a car lease for even up to one year. But this comes with limitations, as well as financial implications. Hence, if you're thinking of extending your lease, you may need to consult your provider to determine if they allow extensions. At the same time, you should consider the financial implication of your decision on your bottom line.
Even though lease extension may look like a reprieve in the short-term, it can cost your business so much more in the long-run. That is, most people might jump at the option of postponing to renew their car lease by opting to pay the small lease extension administration fee. But continuing to hold onto older vehicles can affect your operations and consequently hurt your bottom line.
As such, we recommend that you extend your lease only when it's essential. For instance, it's okay to apply for a few days' extension as you finalize a new lease agreement.
Essentially, there are two types of lease extensions - informal and formal. Under the informal extension, you can notify your lease provider, even via a phone call, to extend the lease for a specific duration. Maybe you may not have found a new car yet, and you want more time. Or it could be you're still weighing other options like buying a new car instead of leasing. Note that informal extension should not exceed six months.
On the other hand, a formal extension requires you to make a written request for an extension. The leaser will then issue a modified agreement that picks up upon the expiration of the existing lease. However, the extension cannot exceed one year.
Once the leaser approves the extension, they will calculate a new monthly payment and notify you of the mileage quota. Also, the leaser will charge you an administration fee.
As earlier mentioned, lease extension isn't always a better option. Some of its downsides include;
If the manufacturer warranty has expired with the initial lease agreement, you will be uncovered for major vehicle repairs. Financing these out of your pocket can significantly set back your business financially.
Business vehicles tend to have more wear and tear than their private counterparts due to their heavy usage. As a result, they may age faster, resulting in more breakdowns. Driving a car past the leasing duration may see you spending more on repairs and maintenance. For instance, parts like tires, brake pads, etc., will be needing replacement, so those will be an added business expense.
As a car ages, its engine weakens, and so does its fuel economy. So, you may end up spending more than you would with a more modern model.
In essence, once the initial lease expires, most of the covered maintenance services end. By extending the lease, you'll be paying for most of the vehicle expenses in addition to the monthly payments.
It always makes financial sense to renew your car lease upon expiry. This allows you to try newer vehicle models that can help your business run more efficiently. Besides, acquiring a new fleet every few years motivates drivers and consequently leads to better staff retention.
Alternatively, you can buy the off-lease vehicle. This has many benefits, among which you can arrange a maintenance plan with the leasing company and continue enjoying professional services. As a result, you can continue receiving quality management while minimizing your fleet costs, as they are fixed.
Is your lease nearing its term? At Wilmar Inc, we offer a flexible leasing service that's loaded with benefits for your team and business. Kindly explore our leasing options here and allow us to customize a fleet solution that fits your business needs.