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Running a business isn’t easy. Countless variables affect daily operations, each of them requiring decisions that need to be carefully weighed and assessed.
One of the big operational decisions comes in the form of asset procurement—vehicle procurement, to be exact.
In it, you’ll have to answer the pressing question: should I buy the company car directly, or should I lease it from a lender instead?
The advantages of owning a vehicle, such as full ownership and reduced recurring costs, make buying a company car an attractive option for many business owners.
And while each business’s structure is different, is car leasing still a viable option?
To that, we answer: yes, car leasing is a viable business move. And in many cases, it’s even preferable.
Here are six helpful benefits you can get for choosing to lease a car for your business.
1. Tax Benefits
All ethical businesses understand the importance of paying their taxes thoroughly and accurately. That said, it’s still a cost centre, and it’s within your right to write off taxes for leased assets, including vehicles.
Unlike buying a car, leasing a car can help you claim tax deductions on your monthly payments. You can receive up to 100% of your VAT back if you prove that the car is being used for business purposes. This extends to gas and diesel expenses as well.
This is unlike car ownership, where the only VAT you can claim is for interest deductions. In the long run, this can mean extra savings and decreased outer cash flow, which means more capital revolving in your business.
That said, these rules may vary from country to country, so check with your tax specialist to get a clearer picture of the tax savings you can gain.
2. Lower Upfront Costs
Let’s face it, raising enough capital to own a car, or a fleet of cars is not a feasible strategy for many small-scale businesses and startups. Why? Think about it: the average car costs well into the five-digit territory at $40,916. A fleet of them? Significantly more.
Fortunately, car leasing alleviates this concern as lease payments are significantly cheaper than upfront and interest-laden payments. Plus, you don’t have to shell out a large portion of your capital for a downpayment either.
If you want to conserve your firm’s cash flow or don’t have a lot of cash on hand, car leasing can be a viable short-term strategy to get started. And, in the non-zero percentage that the business venture fails, you don’t have to worry about liquidating a depreciated asset and going further down in the red.
3. More Flexibility
Buying a fleet outright can rip a chunk out of your business funds. And once its value declines during use, from depreciation or otherwise, you may as well kiss those thousand-dollar checks goodbye.
A good compromise at a glance would be hire purchase schemes, giving you time to own a vehicle in question and paying minimum monthly payments. However, depending on your payment timeline, you could end up with an outdated car model by the time it’s officially paid off.
This is not the case for car leasing. You can choose from a wide range of lease terms, ranging from short-term to long-term. Short-term leases (usually less than 4 years) offer flexibility and the ability to upgrade your vehicles faster. Longer-term leases provide more cost savings in exchange for a longer commitment.
That said, hire purchases can help you expand your fleet if you are in the transportation and logistics business. Click here to learn more.
4. Lower Monthly Payments
Leasing not only removes the burden of raising capital, but it also comes with significantly lower monthly payments compared to a loan payment.
When you’re in a car leasing contract, you’re essentially paying for the depreciation of the car during its lease period, as well as smaller fees like interest charges, taxes, and the lease fee.
This is unlike getting a car loan, where you’re also paying for the purchase price (which is going to take a significant amount of time, causing interest to spike as well) alongside interest and tax charges.
5. Fewer Maintenance Costs
While a well-kept and newly-bought car won’t suffer from wear for a few years, it’ll eventually succumb to pricy repair fees in its lifespan. This is an unavoidable situation, whether the car is in use or not.
However, this is not so much of a problem for car leasing. For one, car leasing agreements don’t need to last very long—and having a short-term agreement makes these rented cars less vulnerable to expensive depreciation and maintenance fees.
Secondly, a leased vehicle usually has an extensive warranty service that covers the cost of breakdowns and bumper damage. In a few rare cases, lenders also offer perks like a maintenance package for your car.
6. Access To Newer Vehicles
A company is often represented by its assets, and driving up to an important meeting in an old car type does not leave a good impression.
Instead of buying a company car and having it represent you for a decade or two, you can lease new models every few years instead. This way, you can enjoy testing out newly-released car models in the market while simultaneously keeping up your company’s image with car leasing. Of course, a newer vehicle is also less susceptible to breakdowns, meaning that your operations can run smoothly and not be hindered by common mechanical car problems.