Company Cars: Leasing Vs Buying – Which Is Best For Your Business?

If you buy your company car, you will choose whether to buy it outright or pay using a loan.

Buying a car outright can be very expensive upfront, but when it’s done, it’s done, and you are free to enjoy your vehicle without having bills hanging over your head.

Purchasing a car using a loan, however, relieves the upfront cost, but can cost more in regular payments over time, and you may be restricted with what you can do with your car until your loan is paid off.

Business car leasing is not as widespread in the UK as it is the US, but can offer a financially viable alternative for businesses. Under a business lease, your company can ‘rent’ a car for a fixed period (usually between 2-5 years), with payments made monthly until the car is returned.

While leaseholders are still required to service and maintain their vehicle, leasing a car is much cheaper than buying the car in its entirety, and a leased vehicle is usually in much better condition than one bought second-hand from a dealer or private trader.

In this article, we will weigh up the pros and cons of leasing vs buying for businesses.

 

The Pros Of Business Car Leasing

Business car leasing can offer several advantages to businesses. Firstly, the expense of leasing a car is less than buying one, as the upfront cost is much lower than buying outright, and you only pay for the amount of time that you are using the vehicle.

In addition, the monthly payments are usually fixed at an affordable price, making leasing a sustainable long-term option for businesses of all sizes.

Under a business lease, you have nearly as much freedom as a buyer; you can choose your car according to your own specifications, such as the vehicle’s make, model, and colour. You can even put your branding and contact details – like your logo and contact details etc. – on the side of your vehicle to help promote your business.

And are you concerned about the potential condition of a leased vehicle?

Thankfully, lease vehicles usually come in very good condition. In fact, 99% of leased vehicles in the marketplace are brand new, making them highly reliable and unlikely to suffer serious mechanical issues.

Leased vehicles go through rigorous checks before they are released onto the market, making it much more likely that potential issues will be picked up before you receive your car. This also means that you won’t have to suffer the costs of an ageing vehicle, which can present more issues due to wear and tear.

 

The Cons Of Business Car Leasing

There are a few drawbacks of leasing a vehicle that you may wish to consider before committing to a lease.

The most obvious of these is that if your business does not buy the car outright, you also cannot sell it. However, given that most vehicles depreciate over time, this can act as a benefit, as you also will not encounter financial losses due to vehicle depreciation.

Another drawback is that if you exceed the expected mileage of the lease, or terminate your contract early, you may encounter fees. This can be simply avoided, however, by staying mindful of your mileage and arranging a realistic contract duration from a vehicle and leasing company that you have thoroughly researched beforehand.

High CO2 band vehicles are also subject to heavy company car tax. As such, if you intend on using a vehicle that produces high levels of CO2, you may find that personal leasing offers better savings on tax.

In the vast majority of leases, you also cannot make permanent modifications to the vehicle. So if you’re looking for a car to make your own, leases probably aren’t for you.

 

The Pros Of Buying Your Company Car

Buying your car can offer significant advantages too, however.

One major benefit of buying your company car is that you have the freedom to do whatever you want with it within legal remits.

That means you can add permanent branding and modifications, and get as creative as you like, to attract the attention of your customers and stand out from the competition. This can be particularly useful for companies that use their vehicle as the centre of their business – like food trucks, for example.

It also means that you can sell your vehicle whenever you like – which can be useful if you want to upgrade your vehicle, or if you can no longer afford to run your company car.

And if your business specialises in vehicles that increase in value, such as classic or limited-edition cars, you may also be better off buying outright, as this will give you the opportunity to sell your car and make money from it.

Plus, there’s no mileage limit! So if you or your employees make regular long commutes, buying your car may be the cheaper option.

 

The Cons Of Buying Your Company Car 

Firstly, it can be expensive to buy a company car outright. Not only will you be paying for the price of the car, but VAT is added on top, and can only be reclaimed if it is never used for any private journeys. This can take up a significant proportion of business capital, which could have otherwise been spent on other business activities.

Plus, if you purchase your vehicle using a loan, you may find that you are paying much more in repayments than you would pay for a leased vehicle. On top of that, only the interest is deductible from profits with a vehicle paid using a loan, whereas a leased vehicle is fully tax-deductible.

Secondly, you may also find you lose money if you buy a depreciating car. The average car can lose up to 60% of its value within the first three years, just by travelling an annual distance of 10,000 miles. Plus, a new car loses 10% of its value as soon as it leaves the sales court, and your vehicle will also need to be listed on business accounts as a liability – which could impact your ability to borrow other funds.

You may also find that owning your own company car takes up a significant amount of company time and money. Not only will you have to organise and pay for Road Tax, Breakdown Recovery, and MOTs, but also routine services and maintenance. This could result in spending extra on employee wages if you cannot find the time to do it yourself.

Finally, while you can sell your company car whenever you choose, there’s no guarantee there will be buyers lining up to purchase it! Therefore, if you no longer use your company car, you may find that you still have to pay road tax and insurance for a car that is no longer in use.

And if you have bought your company car using a loan, you may also not be able to sell it until the full loan amount is paid off.

 

The Key Lessons About Leasing 

Leasing is a financially viable alternative to buying a car for many businesses, and it can offer many financial and practical benefits – such as reduced upfront costs, lower regular payments than a loan, and vehicles that arrive in good condition.

It also relieves many of the stresses of owning your own company car – such as spending the time and money on arranging Road Tax, Breakdown Recovery, and MOTs, while also eliminating the risk of losing money on a depreciating vehicle.

So why not consider if leasing could be the best option for your business?