There may come a time when you need to acquire a car to conduct business. As keeping the company operational costs to a minimum, it is necessary for entrepreneurs to review all of their financing options before making a decision. Whether paying cash, financing through an auto lender or leasing from the dealership, they all have factors that need to be considered as it relates to your business needs and finances.
Comparisons to Consider
Tax Benefits – a car that is financed or paid for in cash is considered a company asset which can generate tax benefits. A leased vehicle, however, does not provide this benefit.
Initial Costs – A car that is paid for with the help of auto finance companies will have more initial costs. You’ll be required to pay for a down payment, whereas a lease typically requires a deposit of one monthly payment.
Mileage – mileage can be counted as a deductible expense each year on your tax returns for both financed and leased vehicles. However, for a car you own, the more miles on it, the lower the resale value. For leased vehicles that have mile caps, going over could cost you more.
Questions to Ask
Now that you have a better understanding of the differences in a financed and leased company car, you’ll need to consider your personal circumstances to determine which is the best route for you. Here are some questions to ask.
Can you afford the initial costs? If you’ll have to borrow the money to cover the down payment, you might be better off leasing.
How often will it be driven? Since high-mileage can contribute to wear and tear and low resale value for those who choose to finance or purchase the car outright, you must ask yourself how often you’ll be driving the car. Keeping in mind that leases have mileage caps, if you intend to drive it regularly, it may be best to finance.
What do you intend to do after it’s paid in full? At the end of a lease agreement, you’re given the option to purchase the car or lease a new one. However, once you’ve finished paying your auto loan from a financing company, the cars is yours to do with as you please. If you plan on selling the car or would just prefer not to have the burden of a monthly car payment, financing may be best.
If you’re unable to determine whether or not you should lease, finance, or purchase your company cars outright, it is recommended to speak with your company accountant who can help assess your budget and help you to make the most informed decision. Whichever option yu choose, do be sure to purchase adequate insurance protection to cover yourself and your staff on the road.