Many people are now switching to a corporate car lease instead of outright purchasing them. These include both salaried people as well as businessmen. This has a lot to do with the highly attractive monthly costs as well as the intrinsic ability to switch cars. This holds even truer if we factor in new safety features and cutting edge technology in the automotive sector.
But here the main question is whether or not a leased automobile the right choice for your business. Let us take into account the key factors involved in a decision to buy or lease a company car:
Buying vs. Leasing
There is no specific formula when it comes to making a decision to lease or buy a company vehicle since individual business situations differ on a case to case basis. Here are a few considerations you should keep in mind:
The Length of The Ownership of The Vehicle
This is probably one of the single most important considerations in the car lease vs. purchase decision. Most company cars are subjected to a lot of rough usages, which means that you might be interested in getting a new one sooner, rather than later. This will make the lease option a more financially viable idea.
As a general rule, a company car is usually driven more miles than the average personal vehicle. This can lead to increased maintenance costs and shorter service life overall.
Total Cost of The Vehicle
Both leasing and purchase options have their own different costs for the total duration of the company’s ownership of the vehicle. These include the total cost of the lease or loan (in case it’s a leased vehicle), the total expected mileage, and its overall upkeep and maintenance costs.
You should also consider the cash flows of your investment such as the date on which you must make your payments and also the total cost of the lease. Finally, you should also consider the net value of the car (after deducting depreciation) at the end of the lease period vis-a-vis the total ownership period. You should also remember that the taxes are different for both these automobile acquisition methods.
The Term Length of The Lease
Most leasing companies prefer longer leases over their short term counterparts. This is due to the rapid depreciation in residual value in the first 24 months. It makes sense because most automobiles depreciate a lot faster at the beginning rather than later on in their service life. Thus, most lease terms start from 12 months and may extend up to 48 months.
You should check the “bumper to bumper” warranty on the automobile and refrain from extending the lease past that date. This is because it will simply lead to low resale value.
The corporate car lease option will also keep your liquid assets safe for other more important business needs so that you will be able to run your business smoothly.