Leasing vs buying a car is one of the important considerations in a business as it grows — whether it’s a first vehicle or a fleet.
There are pros and cons to both, so let’s get down to it.
Whether it’s a full payment or a down payment with monthly loan repayments, you’ll deal with a high up front cost when you buy a vehicle outright. Although, one of the advantages is that you’ll have ownership of the car.
You’d prefer buying if you:
- do not consider a new vehicle often
- travel a considerable amount in your vehicle annually
- do not want to be locked into a fixed term contract
- want ownership of the vehicle.
Operating and finance lease are two types of lease arrangement:
- Operating lease — runs for 36 months with requirements to stipulate anticipated mileage at the beginning of the lease. Obviously, there’s no right of ownership at the end of the lease term.
- Finance lease — is normally a 46-month term with an option to purchase the vehicle at the end of the term. There’s no penalty for excess mileage.
You might prefer leasing for a number of reasons:
- as an operating expense, leased vehicles are fully tax deductible
- it’s easier to budget a fixed monthly rental cost
- the monthly rental can cover the maintenance and insurance costs
- to improve your business’s gearing ratio, your vehicle will not be on the company’s balance sheet in an operating lease
- you can upgrade your vehicle at the end of the lease term or purchase it for the residual cost in a finance lease.
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Note: Make sure your contract in leasing a car is a closed-end lease — a standard and sets a specific amount for a depreciation cost for you to pay.
Disadvantages of leasing a car
- you wouldn’t want to be locked into the lease if you decide to break a 3-year lease halfway through. You’ll have to pay the remainder of the lease and any termination fees included in the agreement.
- you’ll be charged extra at the end of the lease for anything that decreases the resale value of the car — wear and tear, including scratches and dings.
- you‘ll probably have to pay extra if you’ve customised the vehicle in any way, even if it seems like added value to the car.
- you’ll have to pay if your petrol gauge surpasses the limit you have agreed to in your lease contract.
The current rate of car depreciation in New Zealand is a big factor in deciding to buy or lease. Within three years, it’s now common for a vehicle to lose half its market value. It’s nonsensical to put a capital towards an asset that depreciates quickly.
Also, if you like a new car every few years, a lease is probably a better option for you. When you buy and sell a car every few years, you’ll end up with lots of negative equity, which is bad.
So, you decide which is better.
Do you need cash to buy or lease a car? Do you need the process to be quick and hassle-free?
PPL processes unsecured loans online during business hours on the day you make the application. As long as it’s received before 8:00PM, you’ll be able to get the funds on the same day.