Whether you’re a sole trader or own a company, if you need a vehicle for work, check out our guide to buying or leasing a car for business.
Every penny counts when you’re running a business so it’s understandable if cost is a big factor in your decision making. If you’re buying a car on finance, you might need access to a lump sum upfront. No deposit options are available but the more you’re able to put down, the lower your monthly payments will be.
A hire purchase finance deal will have higher monthly payments than leasing, but the car could become a business asset once you’ve made all your payments (including the ‘Option to Purchase’ fee).
But if you don’t have the capital available to invest in buying a company car then leasing could be cheaper in the short-term. Bear in mind though that you could be tied in for the full length of your lease and need to pay extra to end it early. And, of course, once you’ve finished your agreement and handed the keys back, you won’t own the car.
Depreciation is something you won’t have to worry about when leasing a car for business. As you never own the car, there’s no need to think about resale value or how quickly the model you’ve chosen could lose value. That also means you can often afford to drive a car you wouldn’t usually be able to (great for impressing new clients!)
If you choose to buy a car through finance, then depreciation will impact the vehicle’s value -something you should keep in mind if you need to sell your company cars in the future.
One advantage of using finance to buy a car is that you could earn tax breaks. Business vehicles (cars and vans) can qualify for capital allowances and you can deduct some or all their value from your profits before you pay tax. And if you’re self-employed you can also claim allowable business expense for your vehicle insurance, repairs and servicing, fuel, parking, hire charges, vehicle licence fees and breakdown cover.
Depending on the type of company you have, mileage restrictions could make a big difference. Car leasing and personal contract purchase deals typically state the number of miles you can drive annually, and you’ll need to pay extra fees if you exceed that limit. So, if your business has clients based around the country or staff that spend hours driving up and down the motorway each week, a hire purchase deal with no mileage restrictions could be the best choice for you.
Wear and tear
When you need a vehicle for work, it’s probably going to be put through its paces. If you’re using your car or van everyday and travelling long distances, wear and tear will happen. Whether it’s an accidental scrape from a tight parking space or a flat tire from a surprise pothole, some issues are almost inevitable. Of course, if you have the car on hire purchase then you will need to pay for repairs yourself but with leasing, any damage could incur hefty fines. It’s worth taking these extra charges into account when deciding whether they outweigh the potential loss of value from depreciation.
More Information at: CarFinance247