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Car Lease Vs Outright Purchase: What Is The Difference

Submitted by diwakar on Sat, 02/10/2018 - 05:21
car-lease-vs-outright-purchase

Acquiring new assets for your business, including cars, is a major financial commitment. One of the key decisions a business will face when acquiring a new vehicle is “Should I buy outright or lease?” When it comes to selecting a new vehicle there’s a lot to consider including the capital cost, your budget, how long you expect to keep it and whether to buy or lease.

 

Buying assets outright

While having complete ownership of business vehicles can be appealing, there are a number of factors to consider before buying assets outright.

  • You will need to make a significant initial payment, resulting in a significant upfront cash requirement. This may put pressure on your cash flow. You’ll need to consider if your cash flow is steady or if it’s subject to fluctuations.
  • A car is likely to depreciate in value over time meaning it will be worth less when you come to sell it. This could have more financial implications than you’d like if you have not budgeted appropriately to replace the vehicle.
  • If you decide to purchase outright through your bank or a finance company, you’ll need to take the interest rates charged by your financial institution into account. Interest charged may depend on your credit rating and whether you’re a new customer, a start-up or a small or large business. 
  • It’s likely your financial institution will require security against your loan such as using other assets as collateral.
  • Unlike a lease, when you buy outright there’s no ability to spread the cost of the purchase over a long period.
  • The responsibility for repairs and maintenance lies entirely with you or your business.
  • Buying outright means you won’t be able to take advantage of the tax benefits which may be associated with leasing.

 

What about leasing?

Leasing is a popular method of acquiring a new car, or other assets. In some circumstances, leasing can be a more cost effective alternative than an outright purchase. There are some important things to keep in mind when you are considering leasing a vehicle:

  • There may be tax advantages to leasing a vehicle rather than purchasing it outright.
  • If you lease a vehicle, you will be able to use the capital you would have spent on the purchase to invest into your company to drive growth.
  • The monthly payments are fixed for the full term of the lease.
  • The leasing company can perform all the onerous administrative tasks of managing your fleet for you, leaving you with more time to concentrate on your business.
  • You have a number of options at the end of the lease depending on the type of lease you enter into – keep the car, upgrade or release. You won’t have to worry about selling or trading the car in.
  • The security taken by the lessor is usually just the car itself, not other assets.
  • In some circumstances, operating lease payments may be tax deductible.
  • Maxxia can help you source the right lease and car to suit your needs.
  • Maxxia’s buying power means we can help you source vehicles cost effectively, which results in reduced overall costs in running your fleet.
  • A fully maintained lease can include all services associated with running your fleet such as; scheduled & non-scheduled maintenance, replacement tyres, annual licensing, WOF’s, roadside & accident assistance and replacement RUC’s (on-charged).

Leasing and buying both offer advantages. The key to making the right decision is understanding your needs and it’s always advisable to seek independent advice before making a decision.

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