The moment you drive your business vehicle off the showroom floor it loses 15 - 30% of its value. Given this, does it make sense to rather lease your vehicle and hand it back to the dealer once the lease expires? This article describes the pros and cons of leasing vs buying a commercial vehicle and then asks some pertinent questions to help you decide which is best for you.
Before we dive into whether buying or leasing a commercial vehicle is best for your business lets looks at the difference:
Leasing a vehicle is where you pay a monthly fee to have use of the vehicle. Think of it as a long-term car rental. Road tax, breakdown cover, and warranties are included and you can often also get service and maintenance included with your monthly fee as well. You never own the vehicle but the monthly fees are often less than repayments on the same vehicle would be. You also normally have an agreed-upon mileage limit that you will need to pay a penalty for if you exceed it.
Straight-forward. You buy a new or used vehicle for cash or pay it off over a set amount of time. You own the vehicle at the end of the payment terms and are responsible for road taxes, insurance, additional warranties, and maintenance (unless you take out a maintenance plan).
Pros of Leasing a Vehicle:
- Great for businesses that don't want to own a depreciating asset
- Most lease packages include breakdown and maintenance so you don't need to budget for this
- You get a new vehicle every few years
- You can write off part or all of the VAT on the monthly fee
Pros of Buying a Vehicle:
- You keep the vehicle once it is paid off
- There is no mileage limit
- You can trade in one vehicle on another
So, Should I buy or lease:
You need to ask yourself the following simple questions:
- Does my business have enough capital to buy the vehicle cash or does it have enough estimated regular income to pay off the vehicle?
- Am I happy to budget extra for maintenance costs?
- Am I doing more than 30 000 miles per year?
- Do I believe the vehicle will have substantial resale value after 3 - 5 years?
If you answered yes to any of these questions then you should seriously consider buying the vehicle, especially if you can afford to do so cash. If you are concerned about affording the monthly repayment on a vehicle, then leasing might be the better option. If leasing, read the contract carefully and make note of mileage limits and any lump-sum payments at the end of the lease
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