Should I buy or lease a car for business?

What is leasing for business?

If you’ve ever rented a car on holiday, leasing will feel familiar. And while we don’t currently work with lenders that offer leasing at CarFinance 247, that doesn’t mean it’s not the right choice for your business.

Leasing or Personal Contract Hire (PCH) is a type of long-term vehicle rental that typically lasts between two and four years. You’ll pay fixed monthly payments throughout the agreement, but you never have the option to buy the car. When your time is up, you give it back – even if you don’t want to!

Car leasing can be a popular choice for business because you don’t have to worry about selling the car and you can change vehicles regularly. There are even options available with built-in maintenance packages for added peace-of-mind. But if you don’t want to navigate mileage limits or face extra charges for wear and tear, leasing might not be the best fit for you.

Find out more about PCH Leasing here

What types of car finance are on offer for business? 

If leasing isn’t right for your business, buying a car on finance could offer an alternative. Here at CarFinance 247, we work with lenders that can offer the three main types of car finance: hire purchase, personal contract purchase, and personal loans.

With a personal loan, you’ll typically borrow a lump sum that you receive in one go and pay back in monthly instalments over a set length of time. This means you’ll be able to buy a car and own it straightaway. 

Another option is hire purchase (HP). This type of car loan is secured against the car, but once you make your last payment (and pay the ‘Option to Purchase’ fee), it’ll be all yours. Your monthly payments might be higher than they’d be with leasing but it’s unlikely you’ll have any restrictions on how many miles you can drive, and you’ll own the car as a business and tax asset at the end of the agreement.

Personal contract purchase (PCP) is a middle-ground between hire purchase and leasing. The main difference between them is that you have choices; at the end of your agreement, you can choose whether to buy the car, give it back, or trade it in for a new one.

With PCP, your monthly payments might be lower than a hire purchase deal as you only need to borrow the difference between what your car is worth now and what the lender expects it to be worth at the end of your agreement. As a business this could mean you benefit from lower monthly payments while you build capital, which you can then use to pay the balloon payment and buy the car.

But restrictions do apply – you won’t own the car during your agreement or when it ends (unless you pay the balloon payment) and you’ll be charged if you exceed the agreed mileage or damage the car.

Things to consider when deciding whether to buy or lease a company car

Cost

Every penny counts when you’re running a business so it’s understandable if cost is a big factor in your decision making. If you’re buying a car on finance, you might need access to a lump sum upfront. No deposit options are available but the more you’re able to put down, the lower your monthly payments will be.

A hire purchase finance deal will have higher monthly payments than leasing, but the car could become a business asset once you’ve made all your payments (including the ‘Option to Purchase’ fee).

But if you don’t have the capital available to invest in buying a company car then leasing could be cheaper in the short-term. Bear in mind though that you could be tied in for the full length of your lease and need to pay extra to end it early. And, of course, once you’ve finished your agreement and handed the keys back, you won’t own the car.

Depreciation

Depreciation is something you won’t have to worry about when leasing a car for business. As you never own the car, there’s no need to think about resale value or how quickly the model you’ve chosen could lose value. That also means you can often afford to drive a car you wouldn’t usually be able to (great for impressing new clients!)

If you choose to buy a car through finance, then depreciation will impact the vehicle’s value -something you should keep in mind if you need to sell your company cars in the future.

Tax

One advantage of using finance to buy a car is that you could earn tax breaks. Business vehicles (cars and vans) can qualify for capital allowances and you can deduct some or all their value from your profits before you pay tax. And if you’re self-employed you can also claim allowable business expense for your vehicle insurance, repairs and servicing, fuel, parking, hire charges, vehicle licence fees and breakdown cover.

Mileage

Depending on the type of company you have, mileage restrictions could make a big difference. Car leasing and personal contract purchase deals typically state the number of miles you can drive annually, and you’ll need to pay extra fees if you exceed that limit. So, if your business has clients based around the country or staff that spend hours driving up and down the motorway each week, a hire purchase deal with no mileage restrictions could be the best choice for you.

Wear and tear

When you need a vehicle for work, it’s probably going to be put through its paces. If you’re using your car or van everyday and travelling long distances, wear and tear will happen. Whether it’s an accidental scrape from a tight parking space or a flat tire from a surprise pothole, some issues are almost inevitable. Of course, if you have the car on hire purchase then you will need to pay for repairs yourself but with leasing, any damage could incur hefty fines. It’s worth taking these extra charges into account when deciding whether they outweigh the potential loss of value from depreciation.

Is car finance the right choice for your business? Get a quote today. Rates from 7.9% APR. Representative APR 21.9%.