Should you buy or lease a car for your business?
If you have a business, getting a company vehicle can simplify your operations, and keep you at ease. For this, you can either go the conventional way by splurging on a new car, or try the less traveled route, and lease it instead.
Leasing a car will cost you only a fraction of your car’s original price, and the terms too will be pretty flexible. But is this a feasible option in the long run? At the end of the day, which among the two is more cost-effective? Let’s find out!
Why Should You Buy a Car?
When you’re buying a car, you’ll have to pay the whole negotiated amount of the vehicle. This will give you ownership rights. Additionally, you can also customize the mileage limit according to your needs. Since there are several benefits along the way, we’ll start off by considering these perks in the following section.
Complete Ownership Rights
When you buy a new car, you have complete ownership rights over it. This means, you can use it the way you want. Alternatively, you can also sell it off, or swap it for a new car when you’re upscaling your business.
When you lease a car, you’re likely to fall under mileage restrictions. But such is not the case with the cars you buy. Since you have complete ownership rights over your purchased car, you can drive as much or as little as you’d want without any additional costs.
When you’re buying a car, you’re likely to enjoy a couple of tax benefits because the new car will be deemed as depreciable expense. Since the value of your car is likely to decrease with time, your tax deductions can be maximized.
Can Be Easily Sold Off
Upon signing a lease, you’ll be locked in a contract for a specific period of time. But when you buy a car, you can have it as long as you’d want. So if you find this car to be inconvenient, or costly after a year, you can easily sell it off. Alternatively, if you find your car to be reliable and cost-effective, you can continue using it for your business, several years down the line.
Can Be Personalized According To Your Needs
When you buy a car, you can always personalize it according to your needs. You can add your company’s logo or even give it a new coat of paint. If these alterations add some value to your car, you’ll enjoy higher return on investments when you decide to sell it.
Are there Any Drawbacks?
Just like benefits, buying a car also has its own set of drawbacks. You can take a look at some of them below:
Higher Short-Term Expenses
As you’re paying the entire amount of your car at once, purchasing it is likely to incur higher short-term expenses. Although you can always finance your new car, you’ll still have to a pay a hefty down-payment. And then you’ll have to take the interest amount into consideration as well.
Lesser Tax Deductions
While buying a car comes with certain tax deductions, it is likely to be lower when compared to leasing it. This is because buying a car will incur taxes on its entire purchasing price. Unlike leasing, where you only have to pay taxes for the outstanding amount and your monthly instalments.
When you’re buying a car, there’s no way you can figure out its resale value at the time you plan to sell it. Although you might have a rough estimate, market forces can adversely impact its value. For instance, if you purchase a car that has picked up a terrible reputation for reliability, you might end up losing out on its resale value. Alternatively, if you buy a car that has suddenly spiked up in price, it might get you more money when you plan to sell it.
Since you have complete ownership after buying a car, you’re also responsible for maintaining and repairing it. While this might not seem like an exorbitant amount in the beginning, the costs can soon add up, leaving you in a messy situation.
Why Should You Lease A Car?
When you lease a car, you get to use it for a fixed term against monthly instalments. In most cases, a typical car lease lasts around three to four years. You can also tweak it and let the leasing company handle your maintenance and repairs. But since this isn’t just the only benefit of leasing a car, we’ve listed a couple of other perks in the following section.
Lower Short-Term Costs
Unlike buying a car where you’ll need a hefty sum to make the purchase, leasing a car is cheaper for short-term use. Since you only need to pay the monthly instalments, leasing is always a better idea for small businesses.
No Maintenance Cost
When you buy a car for your business, you’re also required to maintain it from time to time. This is all the more relevant for people who use it regularly. When your car is used almost every day, it’ll be subject to wear and tear, and maintaining it might add up to your costs. But when you lease a car, the maintenance costs will be included in your lease, so your costs are likely to be lower.
Vehicle Can Be Easily Disposed
One of the biggest perks of leasing a car is hassle-free disposal of the vehicle. Since you don’t have ownership rights, your responsibility around it will end the very moment you complete the terms of your lease.
Unless you’re putting plenty of miles on your leased car, it’ll be covered by the manufacturer for the entire time you use it. Since almost every lease comes with a term of few years, you needn’t be worked up about any added cost for the miles.
Less Sales Tax
Depending on your current location, leasing new car might save you tons of money on sales tax. For certain jurisdictions, you’re only required to pay a tax on the downpayment and your monthly instalments. Since the tax is lesser than what you would have incurred if you purchased a car, this is yet another defining aspect of leasing a vehicle.
What Are The Drawbacks?
Just like buying a car, leasing too has its own set of drawbacks. In this sections, we will discuss all about them!
No Ownership Rights
When you’re leasing a vehicle, you do not have any ownership rights over it. Your vehicle will be owned by the leasing company that lets you drive it, as and long you meet the contract terms. You will have no access to the vehicle once your lease ends. Alternatively, if it gets stolen under your watch, the company is liable to take legal action against you.
No Option To Customize
If you’re the kind of person who loves customizing their vehicle with pretty wheels, or a new coat of paint; a leased car may not be the best option. Since your car is under lease, you won’t be able to make these alterations since it’ll violate the contract of your lease.
You’ll Need Good Credit
Although you can lease a car with poor credit history, it is usually more expensive as the interest rate is likely to be higher. Usually, lease companies prefer good credit holders over the bad ones; so if you’re looking for a great deal with bad credit, leasing may not be the best option.
Leased vehicles usually come with a mileage cap. For most companies, you’ll have to set a mileage for the first year and go with it throughout the rest of your lease.
Whether you should buy or lease a car is entirely your call. If you’re planning to buy a car, you can start by researching the car loan market. Look at your options on comparison websites and leverage tools as well. This will help you make an informed decision.