Customer deliveries. Service calls. Corporate travel. Organizations rely on having the vehicles they need when and where they need them to keep business running smoothly. But for newer companies, small businesses, government agencies and other organizations that may not have a dedicated transportation manager or years of fleet expertise under their belts, it can be tough to know when it’s best to reimburse employees for the use of their own cars, when to rent the vehicles you need, and when a lease or purchase might be the better choice. As you consider the options available, it’s important to consider the overall impact to your bottom line.
While buying or leasing may seem like the obvious route, tying up capital for years at a time could mean holding off on other initiatives where the money might have a more meaningful impact. On the other hand, renting to cover ongoing vehicle needs may offer more flexibility but can be less cost effective over time.
Knowing which method to use and when is crucial for optimizing your organization’s vehicle strategy. In this guide, we’ll break down the benefits of rental versus a lease so you can make the choice that best supports your operation’s growth and success.
Know Your Options: Understanding Renting and Leasing Vehicles for Business Use
- Renting a Vehicle for Business: How it Works
- Leasing a Car for Business: How it Works
Renting a Vehicle for Business: How it Works
Whether it’s picking up a car at the airport while on a sales call or reserving a box truck or cargo van to ramp up delivery capabilities during the holiday season, renting a car, van or truck involves borrowing that vehicle from a rental provider, such as Enterprise and National Car Rental, for a predetermined amount of time at an agreed-upon rate.
The following characteristics are common with rental agreements:
• Length of Rental: Rental agreements typically span a period of days, weeks or months.
• Rental Car Payments: Rental charges are most often calculated at a daily or weekly rate, though special rates may be available. Payment is typically secured by a credit card and charged upon the vehicle’s return, though some partners like Enterprise may offer other billing solutions.
• Vehicle Selection: Rental companies usually offer a range of vehicle classes and a variety of makes and models within each class. Choices often include recent-model economy, midsize, full-size and luxury sedans, pickup trucks, SUVs and passenger vans. Enterprise and National, for instance, offer more than 300 makes and models of vehicles. Commercial truck and van rentals may also be available from providers like Enterprise Truck Rental, which carries a wide variety of light- to medium-duty vehicles from pickups to cargo vans, box trucks and stakebeds.
• Maintenance & Repair: The responsibility for regular vehicle maintenance and repair lies with the rental company.
• Insurance Coverage & Damage Protection: Insurance coverage is required and may be provided by the renter’s personal policy. Some credit cards also provide rental car coverage, though it’s important to find out when and how such coverage applies. Additionally, rental providers usually offer add-on protection products such as damage waivers and supplemental liability coverage which may be included with customized agreements.
• Driver Requirements: Renters must have a valid driver’s license, credit card and insurance policy, and meet any age requirements outlined by the rental car company.
Leasing a Car for Business: How it Works
Leasing can be a popular choice for organizations with needs that span a year or more. Business leasing agreements typically fall into two categories: closed-end and open-end. Each has unique characteristics, and choosing the right one depends on your needs, preferences and priorities.
Open-End Leases
Open-end lease agreements, such as those offered by Enterprise Fleet Management, allow for greater flexibility:
• Term Length: Open-end leases are based on an estimated date of replacement (typically after a minimum of 12 months) that can be extended on a month-to-month basis or terminated at any time without penalty after the initial agreed-upon timeframe has been met.
• Lease Payments: Open-end lease payments are based on the vehicle’s estimated residual value — its value at the end of the lease. Both parties agree on this estimate and the associated depreciation is spread throughout the length of the term and covered via equal monthly payments. Upon the vehicle’s return, the difference between its actual market value and estimated residual value is calculated to determine if any additional payments are needed. If the actual market value is lower than expected, the lessee pays the difference, but if it’s higher, they may get money back.
• Mileage and Use Restrictions: In most cases, there are no mileage limits or fees assessed for excessive damage or wear and tear because any associated loss of value beyond what was originally estimated is paid for by the lessee at the end of the agreement. The more accurately the vehicle’s residual value was predicted, the less likely it is that any additional payments will be required.
• End of Term: After the initial minimum term period is met, companies generally have the option to extend the lease on a month-to-month basis, return the vehicle or buy it for the estimated residual value agreed upon at the beginning of the lease. If the vehicle is returned, the lessor sells the vehicle, determining its actual market value. If that value is more than the estimated residual value, the lessee gets money back, but if it’s less, they are responsible for the difference.
Closed-End Leases
Closed-end leases are similar to what you might find at a car dealership when shopping for a personal vehicle:
• Term Length: Closed-end leases run for a specific period of time outlined at the beginning of the lease when the agreement is signed. Though shorter and longer closed-end leases do exist, they’re often for a period of two to five years.
• Lease Payments: Payments for closed-end leases are fixed at the start of the agreement, with generally no additional payments due, provided the lease terms are met.
• Mileage and Use Restrictions: Closed-end leases often come with mileage limitations and allowances for “standard” wear and tear. Violating these terms by exceeding the mileage limits or returning the vehicle in worse-than-expected condition or excessive wear and tear can trigger stiff penalties.
• End of Term: Typically, the leased vehicle is returned at the end of the term. Early return, if allowed at all, can be expensive. Depending on the specifics of the agreement, you may also have the option to purchase the vehicle at the end of the lease at an agreed-upon price.
Other Solutions for Business Transportation
- Mileage Reimbursement
- Vehicle Ownership
Mileage Reimbursement
Often used for travel within a region (common in sales) or for executives who receive a vehicle allowance as a part of their compensation package, mileage reimbursement is a way to repay employees for the use of their personal vehicles for business purposes. Companies can choose whether and how much to reimburse their employees, though many choose to use the standard mileage rate determined each year by the IRS.
• Vehicle Safety and Reliability: Since the vehicle is owned by the employee, you will typically have no say in its upkeep, age or condition. With the average age of U.S. passenger cars climbing to 14.5 years in 2024 according to an analysis by S&P Global, there’s a good chance your employees’ vehicles are much older than the one to three years typical of a rental car. And with Carfax reporting a significant number of Americans are behind on things like regular maintenance, recall, and even registration, it raises concerns about the safety, reliability and accessibility of the personal vehicles being driven for business.
• Reimbursement Expense: If, like many organizations, you reimburse your employees using the standard business mileage rate determined and updated annually by the IRS, you could be spending more than you need to — over 25% more per mile than business rental customers working with Enterprise and National.1
• Vehicle Appearance and Condition: As with maintenance, you may also have no control over how these vehicles look which can influence public perception of your corporate brand or government agency.
“We’ve all experienced it in some fashion,” says Dusty Federko, Assistant Vice President of Mobility Development at Enterprise Mobility. “You walk into a store or a restaurant and the first thing you notice is how it looks, whether it’s clean, if the décor is out of date. Before they’ve even had a chance to greet you, you’re forming an opinion about that business. It’s no different for the employees you’re sending out in the field. If they’re showing up in an older vehicle — maybe the paint is peeling, there’s rust or the car just needs a good wash — those all have the potential to have a negative impact on how your brand is perceived.”
Vehicle Ownership
Many companies opt to buy the vehicles they need, but ownership is not going to be the most efficient or cost-effective choice in every situation.
• Upfront Cost: Whether you’re financing the vehicle via a loan or paying in full, buying often requires a significant payment at the time of purchase.
• Mileage and Use Restrictions: Because you’re the owner, there are no restrictions, though it’s important to consider resale value to make the most of your vehicle investment.
• Maintenance and Repair: As the owner of the vehicle, all maintenance and repair costs are your responsibility.
• Customization: Ownership means you have the freedom to add company branding and make any other modifications you see fit.
• Vehicle Downtime: The funds invested in vehicle ownership cannot be easily reallocated when the vehicle is not in use and monthly loan payments, if applicable, continue until the loan has been paid in full.
“Say you need 45 vehicles in service to handle your busy season, but for the rest of the year, you can comfortably get by with 40. If you purchase those five vehicles to meet that surge in demand, they’re going to sit idle once the business returns to normal levels,” says Roan Oropesa, Director of Government Marketing for Enterprise Fleet Management. “Those long stretches of downtime are a good sign that the money spent to acquire those vehicles probably could’ve been put to better use elsewhere.”
Car Rental vs. Lease: Which Is Right for Your Business?
Each method of vehicle acquisition comes with its own unique advantages that may make it preferable for certain organizations and in certain situations. It’s wise to consider all the factors before deciding on a path.
How will the vehicle be used?
The transportation needs of an employee traveling to a convention a few hours from the office are very different from what’s required of a delivery van making stops all over town or a construction company looking to add a specialized truck to its fleet.
Customization is also a factor. Is it important that the car has your organization’s branding or will a standard paint job on a rental suffice? Do you need a refrigerated truck to ensure your deliveries arrive safely at temp or a standard cargo van?
Beyond simply identifying the right vehicle with the right specs for the job, the intended use can provide insight into anticipated mileage and wear and tear which can help you determine whether a lease (and which type), rental or other solution will make the most financial sense.
How Often and for How Long Is the Vehicle Needed?
Does your operation need a car a few times a year or for everyday use? Is the need ongoing or only to accommodate a temporary rise in demand or bridge the gap while another vehicle is in the shop? Generally, you’ll want to minimize downtime by optimizing your fleet via a mix of flexible solutions for short-term needs and long-term investments.
How Quickly Do You Need the Vehicle?
Are you planning ahead for a replacement you’ll need a year down the road or has an urgent opportunity popped up that hinges on having the right vehicle ready to go in a matter of days? While you can rent a car in a matter of minutes, originating a lease or making a purchase takes more time.
What’s the Best Solution for Your Budget?
While cost savings tend to be universally appealing, timing, market conditions, cash position and other factors can impact the viability and attractiveness of each transportation option. For instance, where ownership might otherwise be the optimal choice to meet frequent, ongoing demands, if you need to free up cash flow for another critical expense, it may not make sense to purchase a vehicle outright. Leasing offers an alternative funding mechanism that frees up capital for other needs.
Your organization’s willingness to take on depreciation risk is also worth considering when deciding on the right method of vehicle acquisition. For example, those who are more comfortable with risk may prefer an open-end lease, while a close-ended lease or other solution could be a better match for the risk-averse.
The Bottom Line on Renting or Leasing Vehicles for Business
With so many factors at play, the answer to the business vehicle question will not only be unique to each organization but can vary by individual use case, making a strategy that combines multiple acquisition methods often the most cost-effective option. A mobility partner should offer expert guidance to aid in your decision making, but here’s a general look at some common situations:
Renting a Vehicle Could Be the Best Choice for:
- Business travel
- Short-term projects and seasonal needs
- Coverage while another vehicle is in the shop for repairs
- Bridging the gap while finalizing a lease or purchase
- Trying out new vehicle features and capabilities before committing to a specific make or model
- Dipping a toe into electrification and pressure testing an EV
- Impressing a high-value prospect or client
- Conserving cash and limiting upfront investment
- Streamlining expense reporting and minimizing accounting complexity
- Easy access to vehicles in multiple places
- Fully-covered maintenance
Partnering with Enterprise and National gives you and your employees the freedom to rent with ease when and where you need to. And with thousands of locations in more than 90 countries worldwide, we’ve got you covered.
Leasing a Car for Business Could Be the Right Move When:
- You need someone to take over your company’s fleet management
- You want to be proactive, using insights to improve efficiency
- You’d like to buy, but the budget won’t allow for a purchase-size down payment
- The vehicle will be used regularly and consistently
- You want the chance to build equity in your fleet without sacrificing flexibility
- You don’t want to worry about managing an aging fleet
- You’d prefer to upgrade your vehicles to newer models every few years
- Your company is new and needs to establish a stronger credit history
- You want to factory-order the right vehicles for the job
- You want to brand your vehicle
- You need a specific make and model
There’s a lot to think about when securing reliable transportation to meet the needs of your operation. Enterprise is here to help. As a part of Enterprise Mobility, we offer a wide range of vehicle solutions from business rental to hands-on, strategic fleet management.