The practice of leasing cars is increasingly becoming popular with customers in America, both for personal and business use. This is largely due to the fact that monthly costs tend to be far lower and you can change your car far more frequently so that you are always driving a car with the latest safety features, and technology.While leasing works out great for the average customer looking for a car to use personally, there has been a lot of debate regarding whether leasing a business car makes sense.
To Lease or To Buy a Company Car
Since every business situation is different from the other, there is, unfortunately, no magic formula that can be used to decide whether you should buy or lease a car for company use. Among the most important considerations are the ownership duration and mileage besides tax implications.
The period of ownership is among the most important factors in deciding whether to lease or not. Since company cars are used quite intensively, many companies make sure that they only own it for the period covered by the warranty to avoid the increasing maintenance costs later on. In such a situation leasing is a good choice because the typical car lease contract runs for three years. At the end of the agreement, the company just returns the vehicle and if it so chooses, leases another vehicle. The company is also not bothered with having to sell off the car at a good price, as the residual price is known beforehand in the lease agreement. Even if the car needs to be disposed before the end of the lease agreement, the company can sell off the lease on good terms on any of the online lease buyout platforms such as https://leasequit.com/, and not have to pay the usual penalties the lease company imposes on early lease retirement.
Keep Track Of the Mileage
The advantage of buying a company car is that you do not have to worry about any mileage limits. This makes it very attractive as then the car can be used as much as required for sales and service calls that can really mount up in a busy company. In sharp contrast, you need to ensure that a leased car runs no more than the 12,000 or so miles per year that aretypically allowed as per the terms of the lease contract. Additional mileage is charged extra on a per mile basis that can work out to be very expensive. This constraint really limits leasing of company cars to those vehicles that will be used by the managerial staff who can keep within the mileage limits.
Cost of Ownership Is a Critical Factor
At the end of the day, it is the total cost of ownership that defines both the selection of the make and model as well as the finance mode. There are a number of very smart calculators that you can find on the Internet where you can compare and contrast the cost of ownership of buying vs. leasing. You will need to input the vehicle price and down payment, interest rate or money factor, expected mileage, the cost of maintenance, the timing of the payments due, and residual value of the vehicle, as well as the ownership period. The greater the accuracy of your inputs, the clearer the answer will be to help you decide whether to buy or lease.
Tax Treatment Can Be the Crucial Difference
Any business transaction has a tax impact, and it is no different when you are buying or leasing a car. When a car is bought, the company can take the benefit of depreciation as the asset is on its books. However, this is not possible in a lease, but the entire lease expense can be charged to the profit and loss account as revenue expenditure. If the car is also used for personal use, the related expenses cannot be claimed. When a business buys a car, all running and maintenance costs can be claimed as deductions but detailed records need to be maintained.
Author Bio: Carl Matheson is a senior manager in charge of financing at a leading automobile dealership. He has assisted many customers to save costs by explaining the advantages of lease buyout platforms like https://leasequit.com