Company Vehicles: Should I Purchase or Lease?

Should you purchase or rent the corporate vehicle?

Purchasing the car outright may be preferable if you anticipate keeping it for at least five years and your financial situation permits it. You should be aware of the benefits and drawbacks of each choice prior to making one. Before you choose the best course of action, it is good if you can respond to a few straightforward questions about how you want to use your car.

1. How many kilometers are you planning to put on the car?

You need to be aware of how far and how many miles you’ll be driving the vehicle. The standard annual mileage cap for leases is 12,000 miles. This means that the car must be at that price or less when you return it. At the end of a three-year lease, the vehicle will have traveled 36,000 miles. Some leases permit somewhat more, like 15,000, or slightly less, like 10,000. You are assessed a specific amount per mile if your usage exceeds the allotted mileage.

2. What is your available cash for a down payment?

Knowing how much money you have available for a down payment is another factor to take into account when deciding whether to lease. When you enter a lease agreement for a car, you often have less money to deposit. Some leases don’t demand a deposit when you lease the vehicle. Your monthly payment will be higher the less money you have for a down payment. The lease payment is still less than the monthly payment when you finance an automobile, even with a little higher monthly payment. There are many gurus who will advise you to lease a car and make the smallest down payment feasible. You should contribute extra to the down payment when financing a car. It will assist in lowering your monthly payment.

3. How are you going to use the car?

When utilizing a leased car for work, the leasing company may set restrictions on the times and methods of use. The regions in which you can drive can be constrained. Although you might not need a car to get to those places, you should be aware of this before signing a lease. Make sure your rented car can be used for work purposes as well. You should make sure you may utilize your lease in this manner if you plan to use your car for a service like Uber. Some leases will completely forbid it. Some others charge you a lot to drive your car in this way because they have tight mileage limitations. When you return the vehicle at the conclusion of the lease, you will be required to make payment for any interior damage.

Cons and Advantages of Leasing

Monthly loan payments for a new car are often higher than lease payments. They rely on the following things:

• As with the purchase of a vehicle, the sale price is negotiated with the dealer.
• Expected mileage: If you choose a larger yearly mileage, the monthly cost will go up a little. If you go above the allotted distance, you’ll be required to pay the dealer cash at the end of the lease for each additional mile.
• Residual Value: This represents the vehicle’s value after depreciation at the end of the lease. This is the price you’ll pay if you opt to buy the car when your lease is up.
• Taxes and fees are tacked on top of the lease and have an impact on the monthly cost.
• For a lease, some dealers or the manufacturers they work with demand a down deposit. Your down payment will affect how much you spend each month for the lease.
• Remember that it might not be wise to invest a large down payment on a car that you’ll ultimately be returning to the dealer. The down payment will lower the cost of buying if you’re certain that you’ll buy it when the lease expires.

Pros

Reduced Monthly Fees

The financial strain of monthly expenses may be partially lessened with a lease. Compared to purchasing, there is typically a lower down payment required. As a result, some people choose to drive more expensive cars than they otherwise could.

Fearless Maintenance

A warranty that lasts at least three years is offered on many new autos. Therefore, if you sign a three-year lease, the majority of repairs might be paid for. Leasing agreements may be able to minimize some large, unexpected costs.

No Resale Concerns

You just give the vehicle back (unless you choose to buy it). You simply need to worry about paying any end-of-lease costs, such as those for unusual wear or extra miles driven on the car.

Tax Deductions

If you use your automobile for work, a lease can provide you access to greater tax breaks than a loan. This is due to the IRS allowing you to write off both the financing costs and depreciation that are included in each monthly payment. The amount of the write-off may be restricted if you’re leasing a luxury car.

Cons

1. Nothing to Own

You may be limited in how much and how far you can drive by the terms of a lease. Drivers who want to modify their cars should also be aware that there can be fees involved. The necessity to undo any alterations they make could result in additional expenses at the conclusion of the lease.

2. Lack of Restraint

The car cannot be sold or traded in to lower the price of your subsequent purchase. Additionally, you’ll constantly have monthly fees and a continuing lack of control over some parts of a car because you’ll begin a new lease when the current one ends.

3. Fees and Additional Costs

Excess mileage (usually 10,000–15,000 miles per year), vehicle customizations, and excessive wear and tear are all subject to fees in your lease agreement. If you choose to end the contract early, there is also an early termination cost.

You also pay an acquisition charge (also called a lease initiation fee). After your contract expires, the dealer may charge you a fee to cover the cost of cleaning and selling the vehicle. Finally, if the lease doesn’t include gap insurance, you can also be responsible for any costs associated with incidents that your insurance doesn’t cover.

Long-term car leasing is more expensive in the end than purchasing a car and keeping it for several years.