If you are considering leasing a car for your business, you may be wondering whether or not it may be better to purchase a car as compared to leasing it. This article will provide information to help answer this question.
1- Lease Payments and Loan Payments
When purchasing a car the loan for a specific amount will need to be repaid even if the value of the car is below the amount of the loan acquired. This will happen, for example, if the car is involved in an accident. However, if the car is leased, the residual value of the automobile at the end of the lease can reduce the overall lease cost. If you receive a closed lease you will be able to walk away from the transaction without any penalties.
According to Intelligent Leasing you should always remember that tax benefits can be received for your business if you are able to prove that the car is being used at least 50% of the time for business purposes.
Join Our Small Business Community
Get the latest news, resources and tips to help you and your small business succeed.
2- An Analysis of Business Car Purchases and Car Leasing
Below are some comparisons of leasing a business car vehicle as compared to purchasing the business car.
Car ownership is different for all businesses because of the tax benefits available. A leased vehicle does not provide you with any tax benefits or depreciation; however, business car purchases will provide you with depreciation deductions.
The Initial Costs
Any up-front costs needed for leasing or buying differ due to the down payments and security deposits; therefore, you will need to consider these issues according to each single case.
The Car Mileage
Mileage expenses can be deducted on both purchased and leased business cars, but higher mileage will be experienced for cars purchased by an owner. This is due to the ability to reduce the vehicle’s resale value. Leased business cars present with mileage limits and a person will be penalized for going over these limits.
The Car Wear And Tear
Any excessive wear and tear to a car will reduce its resale value and can be detrimental for purchased vehicles. If the vehicle is leased, there may be penalties applied for any wear and tear that is considered “excessive”.
The End of Term
One benefit of purchasing a business car is that you are able to do whatever you wish with the vehicle. When using a leased car, you will need to decide between buying the car or turning it in. When turning it in the dealer may offer you another deal for a future vehicle lease.
3- Questions to Ask Before Making a Commitment
Is Cash Required For A Down Payment?
If you are concerned about paying vehicle down payment using cash from the business, it may be better to opt for a car lease. Many vehicle leases do not require any down payment, but there are those that will ask for down payments.
Who Is Driving The Vehicle?
Regardless of whether you are purchasing or leasing the vehicle, it is important to consider who will be driving the car. As a company owner, you should have more control over the mileage irrespective of who is driving. If the vehicle is being driven by a staff member, you may not have control of the vehicle us; however, you will still have control over the mileage. In these situations, it may be more beneficial to purchase a vehicle as compared to leasing one.
What Is The Amount Of Miles Being Driven Per Annum?
It is advised that you take time to discover how far or how much the car will be driven. Leasing terms will often provide restrictions on mileage and the company will need to pay extra for a lease if additional miles are required. However, if the business car is purchased you will not have any limit on the vehicle mileage. It is important to remember that the car will experience faster depreciation if it presents with more mileage.
Should The Additional Maintenance Cost Be Paid?
If you are considering the leasing of a business vehicle, it may be beneficial to spend additional capital on routine car maintenance. This can include tire rotations and oil changes. Lease cars will typically require maintenance; however, if you wish to purchase the cars maintenance remains as important. Here are some good tips from the AA.
What Will Be Done With The Vehicle At The End Of The Lease?
When the company has repaid the car loan, you will continue to own the automobile and can either keep the vehicle, trade the vehicle in or use it as you see fit. At the end of the lease, you will be required to return the leased vehicle and will receive another car or you can negotiate a purchase price with the dealer.
Regardless of whether you purchase or lease a car for our company, it is important to consider the mileage, cash flow, and other concerns specific to your business. It is important to take time for research into the options before making an informed decision.