If you need a car for your business, there are two significant ways to obtain a new vehicle. You can e outright purchase a car for your company, or you can choose to lease one.
Both of these options come with their advantages and disadvantages, so it is essential to know more about them before making the final decision.
How does a car lease work?
When you lease a car for your company’s needs, you rent it from the car dealership. This means that you will be paying a set fee each month until the lease is up. Then and only then will that car finally be your property if you choose to keep it.
A typical lease lasts either 36 or 48 months. Once that time is up, you can either return the vehicle or buy it for the specified amount already in your lease contract.
Things to consider before signing a lease
Leasing a car for your business needs can be a financially wise thing to do.
Doing so can be especially prudent for a small or medium-sized company that is just starting. However, if a low initial cost is something vital for you and keeping a steady cash flow, consider loaning a vehicle for your business.
When you lease a vehicle, you do not need to place collateral. However, many places have meagre initial payments for loaning a car – some even require no money upfront, so that is an option to consider if you need a vehicle that will help you get your business running as soon as possible.
Monthly payments for a car loan usually tend to be significantly lower than those for buying the exact same vehicle, so keep that in mind.
On the other hand, you should know that all those affordable payments won’t give you an instant asset for your business – as stated above, you do not own the car you are leasing.
One more potential downside to taking a lease is that lease contracts come with a mileage limit that varies between ten and fifteen thousand miles per year. That might be enough for you if you do not make too many long-distance trips. But f you do, and you exceed the set mileage limit, expect to pay a fine for every mile that goes over the predetermined limit.
On the other side of the spectrum, you should consider that a lease can last a relatively short amount of time. If you always choose to take a new vehicle when your current lease is over, you will end up with a brand new vehicle every couple of years. Thus, you will save yourself from all the problems of taking care of an ageing car. Also, new cars offer significant improvements in safety, technological features, and fuel economy. This can be another way for you to save money.
Advantages of buying a car for your company
Some dealerships do more than just setting a mileage limit on the leased car.
They can even stipulate how and where you can drive the leased vehicle – it is rare, but those limitations in the contract do happen.
When you buy a vehicle, there is no one that you have to justify your driving patterns and behaviour to as you are the sole owner of that car.
Also, when you lease a vehicle, you are stuck with what you got. Leases do not approve of any sort of modifications or customizations to the leased car. Once more, when you own the vehicle, you can modify its look in any way that you choose.
When you are signing a lease, beware of the fine print. Almost all car dealerships reserve the right to additionally charge you for what they consider “excessive wear and tear.” The trick is that what they believe to be excessive and careless driving can significantly vary from one dealer to another. In addition, many places also have fees for improper maintenance.
Once again, if you are the car owner, you can drive it as recklessly as you want and postpone any repairs for as long as you find fit. This might not be the wisest thing to do, but – you should know your options.
Another significant advantage of buying a car over leasing is that the vehicle’s cost is a depreciable business expense. Plus, some hybrid or electric vehicles might be eligible for additional tax breaks since they are more environmentally friendly.
On the other hand, taking care of your car is far more expensive than looking after a leased one. Most car dealerships offer some sort of insurance and repair package for the cars that they rent. Meanwhile, you will be the one that has to handle all of that work if you choose to buy a car. Sure some vehicles come with free repairs during the first three years. But once that period is over, you will be left with a three years old car and prone to breaking down, and you will be the sole person in charge of paying to fix it.
Finally, the thing that might initially seem like a significant advantage can become a considerable burden once your car becomes too old and unreliable or if you simply want to sell it and get a new car. Since that business car is your asset, you are the one who will be in charge of selling it or trading it in, or disposing of it in some other way. Sometimes it is simply not worth all the hassle.
Leasing a car means lower monthly fees and lower (or non-existent) drive-off-the-lot fees. In addition, during the lease, you will have some sort of insurance and warranty that will cover most of your everyday expenses.
Simultaneously you will not be able to go beyond the mileage limit without paying extra. The same goes for any excess wear and tear to the vehicle. In addition, there might be some other additional fees hiding in the fine print, such as penalties for ending the lease prematurely.
If you buy a car, you will have to make higher monthly payments and cover all the expenses related to its maintenance. On the other hand, you will have no mileage limit or wear and tear charges, but you will be the one who has to sell or trade the car when you no longer want to drive it.
Keep all this info in mind and decide for yourself which option works best for you.