For many small business owners, having a reliable ride is a vital part of doing business.
It’s like a mobile office for some businesses - a place to keep tools; make calls, drive to meet clients and eat lunch on the move.
But a good set of wheels can also be very expensive.
So what’s the best way to go – should you buy or should you lease?
Leasing VS buying
When you lease a vehicle, you’ve got it for a fixed period of time and can drive it for a certain number of kilometres each year.
The car’s covered by warranty and you can choose your favourite from a range of models.
A lease also lets you upgrade at the end of the contract for something better and for tradies, monthly lease payments are tax deductible.
What you don’t get at the end of a lease, is a car. (Although it's possible to buy the car at the end of the lease period under certain types of leasing packages.)
If you do want to end up with a car outright, then it’s usually more straightforward to buy one, either by paying cash in full or with a loan.
Loan payments aren’t tax deductible, but the car can be claimed as a depreciating asset, which may lower your tax bill each year that you own it.
In a nutshell – the pros and cons of leasing
- It avoids tying up cash
- It usually requires a smaller down payment
- You can upgrade your car when the lease expires
- It can be just as, or even more expensive than buying
- It’s not an asset you can borrow against
- You can’t alter the vehicle
In a nutshell - the pros and cons of buying
- You own the car
- You can make changes to it
- There can be larger initial costs
- It’s a depreciating asset
Other issues to consider
If you own a car, trading it in to a dealer could lower the cost of buying a new one from them.
Or if you sell it, you could put the cash towards a down payment when getting a loan to buy or lease your next one.
If you drive a lot, watch your kilometres because if you go over your contracted amount, the penalty rates can be painful.
If you need financing, but have bad credit, you could get a secured loan, where the car itself is used as security by the lender to reduce their risk.
Financing options and things to watch out for
- Unsecured personal loan – a generic loan that carries greater risk for the lender, so you’ll probably pay higher rates and fees
- Dealer finance – their rates and fees are higher than most because they’re a middleman between you and the actual lender. Ask first for their offer, then go shopping for a better rate.
- Hire-purchase agreement – lets you lease a vehicle with an option to purchase it in the end. Could be a good choice if you don’t want to tie up your available cash.
- Novated leases – there are several types of these kinds of leases. They help you reduce your tax bill by taking lease payments directly out of your pre-tax wage. As with all financing options though, talk to an accountant for greater details and advice.
Finally, exploring the choices around financing a car can be challenging, especially when sales people start to talk about novated leases, residuals, balloons, hire purchase and more.
If you’re not familiar with what’s available or the terminology, again to talk to a financial advisor or your accountant and get some help with making a good decision for yourself and your business.
Make sure your business insurance covers you for a hire car, if something happens to your work vehicle.