Is it better to lease a car or get a loan? The answer to that question is dependent on several factors, primarily your economic situation and how you intend to use the car. Whether you are thinking of updating a single vehicle or your entire fleet, leasing may be the better option.
Leasing with the right company will save you money and provide you with additional benefits you may not have considered.
Pros of Leasing
1. Leasing is basically renting the vehicle for a period of time, typically two to three years. You can upgrade your fleet for newer models when your lease runs out, depending on the type of lease you have.
2. An open-end lease locks you into purchasing the vehicle at the end of the lease and you are required to pay the projected residual value of the vehicle, which can be in your favor as you can usually negotiate a better price.
3. A closed-end lease lets you walk away from the vehicle at the end of the lease with no pressure to buy.
4. With a lease you have lower monthly payments, lower interest rates, and you save money on taxes as you are only taxed on the depreciated amount of the vehicle.
5. The vehicle is still under warranty during the time allotted for the lease which means if there is a mechanical or electrical failure, you take it back to the dealer for repairs. The dealer will notify you and make an appointment for you if there is a recall or regular maintenance is due on the vehicle.
Cons of Leasing
1. A lease comes with limited mileage. Typically, a lease designates 10,000 to 15,000 annual miles for the vehicle.
Calculate how many miles your vehicle will travel during the year based on where your clients are in relation to your garage and how many times a vehicle may have to go to the farthest destination in that year.
Does your calculations come in below or above the lease mileage limit? If the answer is above, expect to pay a mileage penalty at the end of the lease.
2. Are your drivers conscientious or careless? With a lease you can be penalized for every exterior scratch or ding and every interior tear or stain.
3. Life changes. Business is booming and you need larger vehicles, but your lease isn't up for another year. Plan on paying an early termination fee when turning in your vehicle. Making changes to the vehicle isn't an option.
You cannot modify a leased vehicle in any way. Therefore, you may be stuck with those vehicles until your lease runs out.
4. Prior to leasing any vehicle the company will do a credit check and you will have to put down a security deposit.
Now that you know the pros and cons of leasing do some research to find out if you can afford to lease.
Pros of Buying
1. You have equity. You own the vehicle.
2. There is no limit on how many miles the vehicle can be driven.
3. The longer you keep the car the less it will cost you over time as long as you keep it in good shape. For example, your monthly car loan payment was $500 for four years and you kept it for six more years. That breaks down to $200 a month over the ten years you owned the vehicle.
4. You can modify the vehicle in any way that benefits your business, including new paint or a wrap with your business name on it.
5. You can use the car as a trade-in on the next one you buy.
Cons of Buying
1. You are paying the entire purchase price plus interest over a fixed period of time.
2. The vehicle, if new, depreciates immediately upon leaving the lot.
3. The dealership and financial institution will require you to carry full coverage until the loan is paid off.
4. If you don't buy an extended warranty you are financially responsible for all repairs and maintenance. That can get costly.
Taking the pros and cons into consideration, along with your finances, you are now equipped to make a knowledgeable decision to lease or buy a car for your business. We can help you make that decision, so when you are ready to add or start your fleet contact us.