A guide to financing or leasing a car for your business
financing or leasing a business car
by Abi Moses on 14th August, 2017
Are you thinking of purchasing a car for your business? If you are, it’s likely that you are currently bombarded with choices in terms of funding possibilities. To help you out, we’ve put together a guide explaining some of the options and straightening out common issues.
What do “purchasing” and “finance” mean?
To begin with, you should always be clear what your intentions are. By this we mean with yourself and with the dealer. Even though many of us use the terms “purchasing” and “finance”, more correctly, we should perhaps be saying “using” and “paying” more generally. This is because the words generally cut to the chase as how you would go about getting a vehicle, pay for it and account for it.
For example, is your aim to own the vehicle or do you simply want to drive the car?
This matters because:
· Purchasing means that the said vehicle will become your property in due course, therefore you may need to finance it.
· By contrast, if you aren’t bothered about ownership of an asset, leasing or renting may be your best option. Your costs can then be written off as a business expense.
Of course, there are other options such as leasing with the possibility of buying the motor at the end of the term.
Basically, it is important to understand and be clear about your intentions and what you are looking for. Do you want eventual ownership of the vehicle or just something to drive for the time being? This will certainly play a very big part in how you choose to fund your business vehicle.
Leasing and hire options
If you don’t want to end up owning the vehicle or are undecided, then the options below may come in helpful. There are numerous variations to choose from but below we’ve considered Contract Hire. The process usually goes like:
· You place a deposit on a vehicle.
· You then pay the renting or leasing company an agreed amount to be able to use the vehicle for a specific amount of time.
· At the end of the period, you simply return the car.
However, you may be able to eliminate the deposit, but that will only increase your monthly payments further.
Car finance options
Hire Purchase is a very familiar method of financing a car purchase:
· You provide a deposit, which is usually around 10%.
· Whilst the vehicle will remain the company’s property initially, after a few regular payments the vehicle will become your property.
A variation on this method is also a “Contract Purchase”, which is the middle-ground between leasing and purchasing.
· The initial deposit and monthly payments operate very similarly to the HP above.
· However, at the end of the term the vehicle doesn’t automatically become yours. You will have a payment option which includes purchasing it outright as a “balloon payment”.
· If you choose to take this option, then the car becomes your property. Likewise, if you choose not to, then it goes back to the financing company instead.
Which is the best option for you?
For many businesses, the idea of spending a large amount of money on a vehicle over time, to not have anything tangible to say for it at the end, might seem like a difficult concept. On the other hand, leasing/renting vehicles does avoid long-term commitments. Overall, different businesses may see these pros and cons differently, which depends on their own financial position.
For some guidance on the best finance deal for your business, be sure to contact us today at, www.carfinancedeals.ltd.uk.