Should you buy or lease a company car?
Many businesses will require the use of a vehicle for their daily operations. One of the first questions a business owner will need to ask is: Should I buy or lease the vehicle?
The main reason a business would buy a car is so that they own the asset. This has the added benefit of tax deductions that could make it an attractive option. Typically, you can claim things like fuel and repairs and maintenance for operating the vehicle.
Your interest payments and depreciation – which can be significant – can also potentially be claimed as a tax deduction.
A car that is owned by you would also allow you to find better rates on insurance, which can end up saving a considerable amount of money.
Another consideration is how much you will need to initially put down to purchase the vehicle with finance. Normally, to achieve lower interest rates, a lender will want to see a percentage of the car’s value as a downpayment to reduce their risk.
The second option for a business is to look at leasing a vehicle for the company.
The main reason a business owner might consider leasing is the cost of a lease can be lower than the cost to finance a car and make repayments.
However, there are other options that can help you reduce your repayments when financing a car – such as a balloon payment – that can lower your monthly costs.
When you lease a car, you never actually own the asset and are also not required to cover the ongoing costs of maintenance and servicing. However, there may be costs associated with driving more kilometres than your lease allows, which would result in additional expenses.
Typically, leasing might be cheaper on a monthly basis, but in the long run, you’ll end up paying far more while not owning the asset. It’s also worth considering what the upfront costs might look like. While a lender would likely want to see a deposit put down to secure a better interest rate, there could be fees associated with leasing the car that also need to be paid upfront.
When deciding if you’d like to lease or buy, there are a host of tax considerations that you need to take into account. These should be discussed with your accountant before making any decisions.
While cash flow is important to all businesses, it’s equally important to do a side-by-side analysis of leasing versus purchasing with finance to determine which option is the most cost-effective for you.
With anything in finance, it’s important that you speak to the right professionals to help you make the best decision for you and your business.