To Buy or to Lease – That is the Question

A new vehicle purchase is a major decision for a business. Once you have decided on a make and model, the next decision is how will you pay for it? Does it make sense to buy it outright or lease?

The vehicle leasing vs buying debate is one that many businesses encounter at various stages of growth, whether it is a first vehicle or a fleet. Is one option better for your business than another?

Buying

Buying a vehicle outright has a high upfront cost, whether you pay the purchase price in full or make a down payment with monthly loan repayments thereafter.

Obviously, the advantage is that you will end up with ownership of the vehicle outright at the end of the loan repayment period.

It is often preferable to buy a vehicle outright if you don’t consider it vitally important to update the vehicle every three years or so, do not want to have to consider how many kilometres you travel or be locked into a fixed term contract.

Leasing

There are generally two types of lease arrangement, an operating lease and finance lease. Operating leases usually run for a period of 36 months. They also require that you stipulate anticipated mileage at the commencement of the lease. There's also no right of ownership at the end of the lease term.

A finance lease, also referred to as lease-to-buy is normally written over a different term (often 46 months) with an option to make an offer to purchase the vehicle at the end of the term. There is still a need to stipulate mileage, but no penalty for excess mileage.

Businesses often prefer leasing vehicles because lease vehicles are fully tax-deductible as an operating expense (but are eligible for personal usage and fringe-benefit deductions). Monthly payments make it easy to budget – and maintenance and insurance costs can often be covered in the monthly rental. You also have the option to upgrade your vehicle at the end of the lease term.

Cars depreciate quickly and may lose half their value over three years. It often makes more sense for businesses to lease their vehicles for this reason.