Company Cars: To Buy or To Lease, That is the Question

Business.com / Insurance / Last Modified: February 22, 2017

Should you buy or lease the company car? Here are pros and cons of each to help you weigh which is best for your needs.

You need a new company car. Should you buy or lease? Generally speaking, a lease is preferable if you only expect to use the vehicle for three years or less, won't put excessive mileage on it, and don't want to make a large financial commitment up front. If you think you're going to keep the vehicle for at least five years and your budget allows for it, buying it outright could be the better option.

Here are key factors to consider:

Leasing Advantages  

Tax advantages. Monthly lease payments are tax-deductible as a business expense.

No maintenance or repair expenses. Regular maintenance is covered as part of some leases.

Easy turnover. You return the vehicle at the end of the lease, with no worries about selling or otherwise disposing of the asset.

Lower monthly payments. Generally, leases have slightly lower monthly payments than financing on an outright purchase.

Related Article: Don't Crash and Burn By Forgetting About Commercial Automobile Insurance

Possible Leasing Disdvantages

Mileage Limitations: Most leases limit driving mileage to 12,000 to 15,000 miles a year. If you've driven more than 30,000 miles at the end of a two-year lease, for example, you could be charged an additional 18 to 25 cents per mile over the limit.

You get what you get. Leased vehicles generally can't be customized.

Beware of the small print. There may be additional charges incurred for:

  • Early termination
  • Residual value, or the amount you have to pay at the end of the lease that represents the appraised market value of the car if you have an option to buy
           - Generally, the higher the residual value, the lower the monthly payments and vice versa
           - You pay the residual value even if the car is actually appraised as worth less at the time            the lease ends
  • Excessive wear and tear attributed to careless driving habits or improper maintenance

Purchasing Advantages

You Own It. You can sell the vehicle and recover some of your original investment. You can drive it as much as you want without worry about exceeding mileage limitations.

Customization. It's your vehicle, you can add whatever options or custom paint jobs you want.

Tax advantage. The cost of the vehicle is a depreciable business expense. Also, certain hybrid and electric vehicles may be eligible for tax breaks.

Related Article: Personal Auto Insurance Coverage for Small Business Use is an Accident Waiting to Happen

Possible Purchasing Disadvantages

Larger capital outlay. Even if you finance, monthly payments are frequently higher than with leasing.

Maintenance and repairs. While many new cars provide "free" service for the first three years or a certain number of miles, beyond that you bear these expenses.

You sell it. When it's time to phase out older vehicles, you take on the hassle of selling, trading in, or otherwise disposing of the asset.

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