As a savvy small business owner, you're always looking for ways to make your dollars go farther.
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But at the same time, you don't want to sacrifice your company's operational capacity by basing your purchasing decisions solely on cost.
The debate between dollars and dependability often comes to a head around the issue of vehicle purchases. Leasing sounds like it will cost more, but it ensures that your vehicles are newer and ready for service. Buying seems like a better investment, but it can result in a fleet of higher mileage (yet fully paid for) business vehicles.
The decision isn't an easy one and the arguments may not be as clear-cut as you think they appear. At the end of the day, it truly comes down to a matter of personal preference and whether buying or leasing is a better fit for your company's unique circumstances. Here is the information you'll need to make an informed decision about whether to lease a business car or buy a business car.
- Financial considerations. Leasing and purchase financing both involve monthly payments. In a lease, your monthly payment can be reduced with a higher residual value. The monthly payments for purchased vehicles tend to be slightly more than lease payments. Also, vehicle purchasers often require a down payment while vehicle leases require minimal money upfront. If cash flow is tight, a vehicle lease may be the way to go.
- Vehicle usage. Leased vehicles are subject to annual mileage limitations. If you go over your allotted mileage you'll be charged a per mile fee at the end of the lease. Obviously vehicle purchases have no mileage limits. You can drive as much as you want – just know that high mileage decreases the vehicle's overall value. If you don't want to be concerned about mileage or minor vehicle damage, you should probably gravitate toward a purchase option.
- Taxes and maintenance. The tax deductibility and maintenance requirements for leased and purchased vehicles are very similar. If you're basing your decision on these factors–don't. There is no clear winner in either of these categories.
- Vehicle disposition. At the end of the lease, you have the option of either turning in your vehicle or purchasing it for the residual value. That's different than in a vehicle purchase where you own the car or truck outright at the end of the loan term.