Should You Buy or Lease a Car for Your Business
Financial Planning Small Business

Should You Buy or Lease a Car for Your Business?

Need a car for you business? This article covers what you need to know between buying or leasing a car for your business.

When you shop for a business vehicle, you’ll be spilt for choice. Deciding what color or make to buy is not the only thing you’ll be wondering. In fact, from the start, you may grapple with whether to buy a car as an asset or lease it to free up cash flow. Here I will answer the question of should you buy or lease a car for your business.

There are many options to consider, either way. No two businesses are the same. It often comes down to what you’ll need the car for, and what your cash flow is like. We’re going to dive into all the factors for you.

Buying vs. Leasing

Business Car Ownership

It’s always great to own. By owning a company car, you are creating an asset for the balance sheet. It also means that your business owns that car as long as it continues working. The owned car becomes a long-term investment that saves money.

It also means that the business is responsible for all of the operating and maintenance costs. Business car ownership is great for long-term finances. Buying also means the ability to customize the car to your needs.

Leasing a Business Car

By leasing a vehicle for your business, you free up cash flow. Buying a car takes up the finances and borrowing power of your business in the short term. Also, when you take out a lease, it frees up capital. You can then use this capital to buy other machinery or ensure long-term security.

Also, when you lease a company vehicle it has a stronger short-term financial benefit. Leasing a car means you can turn it out at the end of the lease. Leased cars are not usually customized. There are also limitations in the contract and potential extra payments.

Factors to Consider Before You Decide

Still need some more details regarding the question of should you buy or lease a car for your business? No worries – the decision to lease or own is not straightforward. No two businesses are the same. It is important to consider every aspect of the purchase or lease agreement before making the decision.

Either option may seem attractive on the surface, but land you in big trouble down the road. As daunting as this may sound, have confidence in your business acumen. Take the decision as seriously as any other business decision. 

In that light, whether leasing or buying, consider the following:

  • Initial Cost – There are upfront costs for both. When you buy a car, you need to give a deposit. On the other hand, buying a car, a deposit will be required. When it comes to leasing, agents usually request the first and last month of payment.
  • Insurance – In either case, you will need proof of insurance. Insurance also varies depending on whether the business is leasing or buying. It is worth getting quotes on both.
  • Wear and Tear – When buying, wear and tear are completely at your own cost. If you lease the vehicle, you might be charged for excessive wear and tear at the end of your contract.

Purchased vs Leased Car Expenses

There are costs associated with both methods. Make sure to check the VIN number when buying a car. Also, check your leasing contract if you need to pay a premium for additional mileage. Depending on the car, the value at the end of the lease period may become a good asset.

Loan Payments vs Lease Payments

If you borrow money to finance the owned company car, you are still paying monthly to get the vehicle. Lease payments are usually lower than loan payments, which means the business is able to get better value. Part of the lease payment is also tax-deductible.

Tax Advantages

There are two major tax implications for business cars. These are depreciation and mileage. Depreciation can be claimed when you buy a car, and the value of the car falls over time. This fall in value can be claimed on taxes.

Depreciation is only claimed if the vehicle is used more than half the time for work. When it comes to mileage, both leased and owned vehicles are able to have mileage deducted.

Other Considerations

There are many options to consider when it comes to buying or leasing. If you take out a lease, you don’t own the car until the final payment. So you may need to drive within their rules. Leasing means your business is able to update its fleet more often.

The company always looks like it has the latest vehicles. Ultimately, it may come down to how well your business will care for the cars. If your business treats cars well, it may be worth buying. If not, leasing might be the ideal option.

So, should you buy or lease a car for you business?

The answer is, it depends! It depends on the position that your business is in. It’s worth finding out the borrowing power your business has. You then need to consider the potential vehicle that can be leased. As a business operator, you know what’s best for you.

Leasing gives the best short-term financial outcome. It also gives you more value for your purchase. Buying a car provides you the security of ownership. It also minimizes costs over the long term. It really depends on the position your business is in.

The main things to consider are:

  • Mileage for businesses that do long distances. Leasing agreements mean penalties for high mileage, so in this case, it’s better to own.
  • Down payments for businesses low on cash. If your business is not in a strong financial position, leasing is the better option.
  • Customizing for special needs. If your business has special vehicle requirements, leasing will not be ideal.
  • Vehicle use under certain conditions. Check with the leasing company for special conditions. The vehicle lease might not accommodate what your business does

There is no single solution for the buy vs. lease question. Consider your financial position and what the vehicle will be used for. From a financial perspective, it’s often best to own a car. But your business may not be in the best financial position. While buying may be better for the long term, there is no use in going bankrupt if you just can’t afford to pay upfront.

For more articles like Should You Guy or Lease a Aar for your Business, check out our financial planning and small business sections of the site.

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