Most start-ups and small businesses operate relatively smoothly without a company car. People use their personal cars or pay courier services to get things done.
Yet, a time comes when bringing on a company car becomes a necessity.
Should you hire or buy one?
There is no right or wrong way to go about this, but there are dynamics involved in operating a company car.
Let’s look at some things you need to know as you weigh buying vs hiring a business car.
A rental company may require you to deposit a certain amount up front and the balance when the lease is up. You can also agree on a monthly payment during the period of the lease.
Whether you’re self-financing or taking a loan, you’ll find that the upfront costs are higher than the initial leasing costs for the same car.
Monthly lease payments are also lower than loan repayments making leasing cheaper than buying.
Over the long term, finance experts indicate that leasing almost always works out more expensive than buying.
When the lease is up, your company will have no equity to show for your investment.
Cars and depreciation are synonymous.
Buying a car means you have a depreciating asset in your books. This means you’ll end up selling it for a lot less than you bought it for.
That said, the car will give you acceptable service over a long period.
Leasing, on the other hand, takes away the headache of depreciation.
You only need to take care of the car while it’s in your possession and hand it back when the lease it up. Depreciation is for the rental company to worry about.
Whether you’re looking for an economical car or a luxurious model, leasing allows you to choose a car that best represents your business.
If you’re in real estate for example and need to transport your clients in style, then leasing is the way to go.
Better yet, you can upgrade to newer rides every couple of years keeping things fresh.
If reliability is high on your priority list, over appearances, or the need to upgrade, then buying a company car will work for you.
Following appearances is the reality of customization.
Buying your own car allows you to modify certain aspects of the vehicle to suit your needs.
A fitting example here would be a company that ferries its own goods or operates a courier service.
They can invest in a Toyota Townace, custom paint it for increased visibility, and remove the back seats to increase carrying capacity.
Unfortunately, this kind of customization is not available in leased cars.
Owning a company car gives you the freedom of driving it anywhere. You’re free to travel to further places for business without worrying about mileage.
Rental cars come with preset mileage which limits how far you can go. If you exceed the set limit, you’ll incur extra charges.
6. Miscellaneous Expenses
Buying a car comes with additional expenses including insurance, fuel, maintenance, and repair costs.
Leased vehicles also have their own expenses including paying for wear and tear.
It’s worth checking with the rental company to see if maintenance and repairs are included in the package.
What to Consider When Buying a Company car
- Pick the right size. Think about the regular journeys you expect to make with the car and the space you need.
- Consider important add-ons. Extras can help minimize the rate of depreciation and even boost safety. Satellite navigation may be essential if you embark on long journeys while passenger airbags are crucial for business cars that regularly carry employees.
- Aesthetic appeal. Eye-catching designs and colors are a source of free advertising and may increase brand visibility.
- Ensure the car you choose can cope with the demands you’ll be imposing on it. A company that needs a car to shuttle staff between offices will have different needs from one that ferries goods.
- Prioritize fuel economy. It’s easy to justify a fancy car for your personal use than a 5.0 engine in your books. If you’re a company for shuttling staff or carrying small to medium-sized goods, then the Toyota HiAce offers solid fuel economy.
Considerations for Hiring a Company Car
- Read the terms and conditions of the lease, specifically the small print to ensure you can adhere to them.
- Find out whether the rental company requires a deposit upfront and how much you’ll be paying in monthly payments. Also look at the penalties for defaulting, damaging the car, or exceeding set mileage.
- Check that the mileage limit will work for your business and if there is room to negotiate.
- Inspect the car’s quality before accepting it and ensure that both you and the rental company agree concerning the condition of the vehicle.
- Ask if the rental company handles general maintenance and repairs or if these will be done by you.
Pros and Cons of Buying Vs Hiring a Business Car
Here’s a summary of the benefits and downsides of both options
Benefits of buying a company car include:
- Acquisition of a long-term asset.
- Freedom of customization.
- No limitation on mileage.
The disadvantages include
- Tying a substantial amount of capital.
- Depreciation factor.
- Disposing of the car attracts extra costs (like advertising) and can be a hassle
Hiring a car has several upsides that include:
- Affordable payments.
- Freedom to choose the ideal car for your business.
- No depreciation costs to consider
- Easy to acquire
Hiring also comes with its downsides such as:
- Limited mileage.
- Inability to modify the vehicle- what you see is what you get.
There are many moving parts in operating a car, whether it’s your own or hired.
There is no right or wrong way to go, it all depends on the factors your company is willing to deal with. We trust the information we’ve shared has helped shed some light on these factors,
Do you prefer buying or hiring? Let us know in the comments.