Once a business starts growing, a score of upgrades and improvisations must be made to make sure that the business keeps running and is able to accommodate additional customers. Eventually, the business has to use a vehicle as a means of transportation for the business’ services.
Is it more practical to buy than to lease a car or is it the other way around?
There are a lot of differences between buying and leasing a car for a business, though. Getting to know each one will help business owners decide if is it better to buy or lease a car for business.
Consider the following points:
- Tax agreements
- Maintenance and other expenses
- Appearance and mileage
The value of a vehicle depreciates the moment the ignition is switched on. A vehicle’s depreciation is a major factor that should be considered when deciding whether to buy or lease a vehicle.
While directly purchasing a vehicle means business owners don’t have to worry about monthly lease payments, they also have to deal with the fact that the asset’s value will start depreciating the moment it is bought.
On the other hand, leasing a car under a business name yields monthly lease payments. If improperly managed, this could take a toll on the business’ monthly outputs.
An advantage that taking a lease has over purchasing is that this depreciation value will figure into the lease agreement, giving business owners an idea of the vehicle’s total value by the time the lease contract ends.
The possible expenses and costs and how these impacts business profit is a primary deciding factor, especially for small businesses. When deciding between buying and leasing a vehicle, costs may vary from one option to another.
When it comes to business car lease requirements, the initial expense is usually lower as compared to the initial down payment required before buying a vehicle.
However, in the long run a leased vehicle will most likely cost more than a purchased vehicle. A business owner has no ownership rights over a leased vehicle—the opposite is true for a purchased equipment. Business owners on a lease also has no equity on the vehicle.
There are various tax benefits of leasing a car vs buying a car available for business owners. Business owners can always write off expenses from vehicle use regardless of whether the vehicle was procured off of a lease agreement or was directly purchased by the business.
One of the tax benefits of leasing a car for business purposes is tax write-offs and deductions. During the first year of vehicle use on a lease, business owners can choose between standard mileage deduction or actual expenses. However, business owners have to stick with their chosen option for the rest of the lease period and for subsequent lease renewals.
Business owners can also provide car fringe benefits for their employees if they make a business vehicle available for their employees to use privately regardless of whether the vehicle is leased or bought by the business. As long as the vehicle is either a sedan or a station wagon with a carrying capacity of one tonne or less and can carry up to nine passengers, then the vehicle can be considered eligible for FBT.
In the event that the business vehicle fails to qualify for an FBT, the vehicle's right of usage may be considered as a residual fringe benefit.
Maintenance and other expenses
Answering the question “how to lease a vehicle for business” also means determining additional costs incurred through future vehicle maintenance and other related expenses.
For the most part, both leased and purchased vehicles usually come with warranties that can be utilised by business owners in the event of repairs. Unlike purchased vehicles however, leased vehicles could also be subject to additional fees if the vehicle shows signs of significant wear and tear once the lease ends.
For leased vehicles, business owners are required to carry a full-coverage insurance. For purchased vehicles, business owners are able to minimise insurance costs once they fully pay the vehicle.
Finding out how to lease a car through your business and deciding between a lease and a purchase means that business owners must be aware of these pros and cons—especially when it comes to miscellaneous fees.
Appearance and mileage
While it might seem minor compared to the other factors above, if business owners want to maintain the functionality and longevity of their vehicle—regardless of whether it was directly purchased or on a lease—the appearance and mileage of a vehicle are important factors too.
Unlike purchased vehicles, leased vehicles may come with a maximum number of miles.
If a business owner decides to lease a vehicle, they will be able to incorporate upgrades without having to worry about haggling prices for the sake of a trade-in. This is especially important if the business is in an industry which requires them to maintain good appearances for clients.
On the other hand, businesses who choose to directly purchase a vehicle have the advantage of longevity and reliability as far as the vehicle is concerned. If a business owner prefers reliability and functionality and does not need to prioritise regular upgrades, it may be more economical for them to purchase a vehicle instead.