When it comes to getting around town, there are a lot of options available. You can take the bus, ride a bike, or walk.
But what if you need to travel long distances? Or what if you have a lot of business meetings and need to be able to transport clients and employees?
In those cases, car leasing might be the best option for your business. Here are 6 things you need to know about business car leasing.
6 Things You Need To Know About Business Car Leasing
1. You Will Have To Return The Vehicle Once The Contract Ends
One of the most important things to be aware of when leasing a car is that the contract is only for a set period of time. This means that you will have to return the vehicle once the contract ends.
This can be a problem if you have grown attached to the car or if your business has come to rely on it. Make sure you are aware of this before you sign a contract.
If you think it will be difficult to let go of the vehicle you intend to lease, you might want to consider a hire purchase. This is similar to car leasing but at the end of the contract, you will have full ownership of the vehicle.
Check out “What Is a Car Lease vs Hire Purchase” from Westpac for more information on this.
2. You Get 100% VAT Credit Only If You Use The Vehicle Solely For Business Purposes
Tax benefits are one of the most attractive features of business car leasing. However, it’s important to be aware that in order to get 100% VAT credit, you need to use the vehicle solely for business purposes.
This means that if you use the car for personal use as well, you will be able to claim only 50% VAT credit.
If you think you will need to use the car for both business and personal use, it’s important to speak to your accountant to see if leasing is still the best option for you.
3. Your Monthly Payments Will Depend On The Vehicle’s Residual Value (RV)
The monthly payments you make on a leased car will be based on the vehicle’s residual value (RV). This is the estimated value of the car at the end of the lease, and the lower the RV, the higher your monthly payments will be.
That’s because a lower RV means that the car has depreciated more and therefore the leasing company will want to recoup this amount.
So it’s important to be aware of the estimated RV of a vehicle before you sign a lease. You can find out the RV of a car by asking the leasing company.
4. You Might Have To Pay Excess Mileage Charges
When you lease a car, you will be given an agreed number of miles that you are allowed to drive per year. This is known as the annual mileage limit. If you go over this limit, you will have to pay excess mileage charges. These can be expensive, so make sure you are aware of the annual mileage limit before you sign the lease.
Generally, the higher your annual mileage limit, the higher your monthly payments. This is why it’s important to assess your needs before you sign a lease. If you think you will need to drive long distances, it might be worth opting for a higher annual mileage limit.
But if you think you will be using the car only for short journeys, opting for a higher mileage limit will mean you’re wasting your money.
5. Business Car Leasing Doesn’t Include Insurance
When you lease a car, the monthly payments will cover the cost of the vehicle itself. But they won’t cover the cost of insurance. So you will need to take out your own insurance before you can drive the car. This is something to bear in mind when budgeting for a leased car.
6. You Don’t Always Have To Put Down A Large Initial Sum
One of the benefits of leasing a car is that you don’t always have to put down a large initial sum, as you would if you were buying a car outright.
This can make leasing a more affordable option for businesses that don’t have a lot of cash to put down upfront.
It’s true that many leasing companies require an initial payment that’s equal to the sum of the first two or three monthly payments. But there are some companies that ask for only the first month’s payment upfront. So it’s definitely worth shopping around to see what different companies are offering.
Keep in mind that the size of your initial payment will affect the amount of your monthly payments. So if you’re looking to keep your monthly payments low, opting for a company that asks for a smaller initial payment might not be a good choice.
Pros And Cons Of Business Car Leasing
Now that you’re aware of the 6 important things to know about business car leasing, it’s time to take a brief look at the pros and cons of this option.
There are many pros of business car leasing, but three of the most important ones are:
- You can get a new car every few years: One of the biggest advantages of leasing a car is that you can trade it in for a new model after a few years. This can be beneficial for businesses that want to always have the latest and greatest car models.
- You don’t have to worry about selling the car: When you’re ready to get a new car, you simply return the leased car to the dealership. You don’t have to worry about selling it yourself, which can sometimes be a pretty big hassle.
- Fixed monthly payments: When you lease a car, you’ll have fixed monthly payments. This can make budgeting for your car expenses much easier.
Although there are many positives to business car leasing, there are also a few potential negatives, including:
- You don’t own the car: One of the biggest disadvantages of leasing a car is that you never actually own the car. At the end of the lease, you simply return it to the dealership.
- You might have to pay early termination fees: If you need to get out of your lease early, you might have to pay early termination fees. These can be expensive, so make sure you’re aware of them before you sign a lease.
Business car leasing can be a great option for businesses that want the flexibility of a new car every few years. But it’s important to be aware of the potential negatives before you sign a lease.
We hope the points we’ve discussed in this article help you make an informed decision. Thanks for reading!