Company cars — best to lease or purchase?

Posted on 10 Oct 2018 and read 1011 times
Company cars — best to lease or purchase?If you are considering providing your employees with company car options, you might be wondering whether it’s better to lease or purchase the vehicles.

Buying a car often means committing to a loan for a specific amount, which you will be required to repay even if the value of the car eventually drops below the value of the loan, for example, if the car is involved in an accident. On the other hand, the residual value at the end of a car leasing period can reduce the cost.

However, there are several comparisons to consider in order to weigh up both pros and cons of leasing and buying a company vehicle. These include:

• 1 Tax Benefits:

To get tax benefits for business you must be able to prove that the car is being driven for business purposes at least 50% of the time. Bear in mind that typically, a leased car will not get you any tax benefits, while purchasing the vehicle can lead to deductions for depreciation.

However, you will still be able to deduct mileage expenses for either a leased or purchased vehicle. Bear in mind that unlike owned cars, car leasing offers tend to come with mileage limits, and you can be penalised for exceeding this.

• 2 End of term:

You can do whatever you want with a purchased company car. However, when you lease a car, you’ll be able to decide at the end of term whether you want to either return it to the hire company, swap it for a new car lease, or purchase it.

If you want to give your employees the option to change their company car after a few years, leasing can be a more convenient and cost-effective option.

• 3 Cost-effectiveness:

Providing company cars to your employees can be expensive, particularly when you buy them by means of car loans, which tend to require a down payment.

On the other hand, you can find several car leasing options which do not require you to put down any money up front.

This could be a suitable option for your business if you are worried about the cost of securing company cars.

However, bear in mind that costs could rise for cars which are not going to be driven by yourself.

• 4 Your Yearly Mileage:

It’s important to bear your expected yearly mileage in mind when deciding whether to lease or purchase a company vehicle for an employee.

Car leasing terms tend to include a strict limit on mileage, and you’ll need to purchase an extension should you wish to do more miles.

On the other hand, purchasing a car means you are free to drive as many miles as you like, but bear in mind that a higher-mileage car will depreciate in value faster.

Take some time to determine how often your vehicle will be driven and whether the mileage limit is going to work for your employees.

Providing company cars to your employees can help them improve work productivity and lead to better job satisfaction.

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