New start-ups face an endless march of decisions, issues, and challenges to act upon, and what to do about vehicles is just another one of those moments. In this article, we look at a question facing many owners of startups – what are the pros and cons of buying and leasing a business vehicle?
What is a lease?
A lease is essentially a long-term rental. You pay a reduced cost for the vehicle, but you never own it. This comes with its own advantages and disadvantages. There are some questions you should ask yourself before committing.
How much cash do you have to spend?
Buying a vehicle usually requires a down-payment, whereas leasing one usually doesn´t. As always, you will need to shop around. The key question is: how much cash you want to invest in a purchase versus how badly you need the vehicle. That´s a question only you can answer.
How much will you use the vehicle?
Lease agreements may have a mileage limit, which may need to be negotiated if you are going to drive a lot. On the other hand, a private vehicle will depreciate faster and need more maintenance if it is driven more.
Speaking of maintenance… who will pay for that?
If it´s a private car, the company is liable. The lease agreement will state if maintenance is included in the cost.
Who will drive the car?
This comes down to control. If it´s not you driving, do you have the time to check the mileage on a lease vehicle every time your employee returns it?
What do you want to do with the vehicle long term?
Is it an asset or a short-term need? Are you going to trade it in, or, if it´s a lease, just return it and negotiate for a new one?
What about tax?
This is complex, so check with your tax advisor. Cars must be used 50% for business needs to be tax deductible, and lease payments are usually deductible, whereas only the interest on a loan is deductible.
There are many options and you need to do the research and make the choice based on your reality. Some companies, such as Mayday Vehicle Rentals offer flexible contracts where vehicles can be rented short-term and this can be a great half-way house until the situation becomes clear.