Leasing vs. Buying a Vehicle for Your Business
In this post, we’ll examine the most important factors you should consider when deciding between buying or leasing a vehicle for your business. Review these tips, so that you can make sure you’re doing what’s best for your business’s situation.
Ownership Can Mean Tax Benefits
When you buy a vehicle for business purposes, the depreciation of the vehicle can be used to decrease your tax bill. This is only possible if you own the vehicle; a leased vehicle will likely decrease in cost as the vehicle depreciates. For these tax benefits to apply, you’ll need to prove that you’re using the vehicle for business operations at least 50 percent of the time.
What’s Your Budget Telling You?
Both forms of payment are likely to come with initial costs in the form of down payments and security deposits. Some leasing companies don’t require as large of a security deposit as others, so it’s certainly worthwhile to shop around.
When shopping for a car, you’ll need to determine if you have the cash for a down payment. If you don’t have the money to make a down payment on a new model, but need the vehicle immediately, leasing might be your only option. A lot of leases don’t require a down payment, whereas buying a car almost always requires a lump sum payment.
The cost of mileage is certainly something to think about too. In a car you own, the mileage cover has a direct impact on the value of the car. The further it travels, the less valuable it becomes. This should be seen as a cost that you can’t avoid. On the other hand, a leased car won’t cost you per mile, but most leased cars do come with a mileage limit. Go over the limit, and you’ll be charged a penalty.
Wear and tear is another factor that will reduce the resale value of a purchased vehicle. In contrast, with a leased vehicle, you’ll only be charged if the damage caused to the vehicle meets certain criteria. This damage criteria should always be clearly outlined to you when you’re given the keys.
How Will the Vehicle Be Used?
If you own the vehicle, you can be more flexible with how it gets used. In comparison, if you lease a car that is driven by someone else, you’ll have less control over how much that employee uses the car in their personal life. This can mean spikes in mileage, which might then result in penalties.
Ultimately, if you think the vehicle will be needed to cover excessive mileage monthly, it’s best to own it so that you won’t have to pay the highest rates for a lease. Although an owned vehicle will depreciate faster if you’re using it all the time, this loss in value is likely to be lower than the cost of constantly exceeding the distance limits that’ll come with a lease.
Do You Want to Be Responsible for Maintenance?
When you own a vehicle, you’ll need to schedule regular maintenance repairs, especially if you’re using it to cover hundreds of miles per month. The less maintenance work you have done on the vehicle, the faster it will depreciate. If you don’t want to handle this on your own, a leased vehicle might be a better option, as most leased vehicles come with maintenance checks and essential repairs as part of the package.
If you’re an experienced mechanic, have a friend who’s an expert, or are willing to shop around for the best repair and maintenance deals, then owning the vehicle will suit you. If you’d prefer not to think about any of that, and simply take your vehicle to the same place for regular work, this would be more in line with a lease setup.
When deciding whether you should lease or buy a vehicle for your business, it’s vital that you consider cash flow, mileage, and the other key issues highlighted above. The more time you spend researching your options and comparing rates, the happier and more confident you’ll be with your decision.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.