If you find yourself needing to purchase a vehicle for business use, the usual question inevitably pops up, should you finance or lease? Both have their upsides and downsides, and working out which is the best option for your circumstances can seem like a tricky undertaking. However, by knowing a few things about each option and what to expect from that route you ultimately take, you should be set up to make a wise decision.
Car leasing is one of the most popular ways to acquire a new or used vehicle in today’s market. It allows you to get into a new car without paying its full price. Leasing can be done with or without a down payment. In some cases, the lease agreement will usually include an option for either buy-out or return at the end of the term, which is generally set between a designated number of months. You can sometimes use an online service to help you decide if leasing is the right way for your business, which the experts at BMW of Mt. Laurel recommend. Leasing is an excellent option for companies with multiple offices or employees who need to travel between locations. You can also save money on gas and parking fees by leasing an electric vehicle.
Leasing a vehicle can be a great business decision. You can get the latest model with all the bells and whistles at an affordable price. There are many benefits of leasing to consider when making this decision, such as:
- Enhanced cash flow: Cash flow is a critical component for all businesses, and purchasing a vehicle can cause you to take a big hit, potentially jeopardizing your business down the line.
- Avoid the depreciation trap: The value of a car drops like a lead balloon after it leaves the lot, causing buyers to lose money. By leasing, you can always have a new vehicle without selling your old one at a loss.
- Enhanced safety for employees: Because leasing allows you to get the latest and greatest models, you will always be assured that they have the newest safety features, keeping you and your staff safe.
- Eco-friendly cars can save you money: Electric vehicles tend to be more expensive than gasoline-powered counterparts, but the leasing costs are typically the same. This means that you can lease an EV and save money on fuel.
- It can be cheaper than personal leasing: Leasing companies love business customers, so the leasing costs tend to be cheaper than those aimed at non-business customers.
As with anything in life, some disadvantages arise from leasing rather than financing your vehicle, and these include:
- You never own it: Perhaps the most significant disadvantage of leasing is that you never actually own anything even after paying hefty amounts over a long period. If you don’t mind this, it isn’t an issue, but this might be a problem (especially as you can’t add it as a business asset).
- You will have mileage limitations: Although business leases tend to have higher limits than personal ones, your mileage will still be limited per annum. It can get costly if you go over these limits.
- It will add up to a never-ending expense: If you know that you need a car for your business, it will be an ongoing expense.
- Insurance might be more expensive: Sometimes leased vehicles are more costly to insure than financed ones.
Business owners often wonder whether it is worth it to finance a car for their business use. The answer will depend, and you should consider a few factors before deciding.
In some cases, financing might be preferable to leasing, but it depends on your circumstances and what you want to get out of the purchase. Some of the main advantages include:
- You will own the vehicle: This can be seen as a pro or con depending on what you need, but most agree that owning an asset is preferable to renting one.
- Businesses can get preferential loan rates: Just as with leasing, companies can often access better finance rates than regular customers.
- The purchase might be tax-deductible: Although you should check with your accountant, in most cases, you can deduct the cost of the car as a business expense.
- You can further develop your credit rating: Making your payments on time will boost your creditworthiness, positively impacting your business.
While financing might look like a bed of roses, there are some downsides that you should factor into your decision, such as:
- A car is a depreciable asset: While this was an advantage for leasing, it is very much a disadvantage for financing.
- You will be reasonable for its upkeep: Some leasing companies will pay for servicing and general maintenance. However, you will be responsible for these things, which could add up to a significant amount if you travel long distances.
- Interest payments: This isn’t really a downside but an inevitability. If you take out a loan, you will have to pay interest, meaning you will ultimately pay more for the car than the sticker price.
As you can see, there are both advantages and disadvantages to each option. However, you are the only person who can make the final decision about what is best for your company and finances.
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