“Should we buy or hire a business car?”
This is a question that many businesses face at some point in their growth cycle.
One thing is for sure, it’s not a ‘one answer fits all’ kind of question.
From cash flow considerations to usage, there are several factors that will lead one business down the leasing road and another to purchase.
Both options have their benefits and downsides and we’re going to explore each to help you make the best choice for your business.
Hiring A Business Car
Hiring is a cost-effective option for businesses that don’t want to tie down large sums of money to a vehicle.
Not only does it free up capital for other aspects of the business, but also allows you to make smaller (affordable) monthly payments.
Benefits of hiring a business car include:
1. Wide Choice Range
Rental car companies have an array of vehicles from luxury cars to economic options. It depends on what you’re in the market for.
Driving a Bentley Bentayga to your meetings will make a solid impression on prospective clients, customers, and business partners.
However, buying one may put a serious dent in your company’s finances.
Choosing to lease the vehicle will be much cheaper and still give you the aura of confidence you need to close those deals.
2. Protection from Depreciation
Most cars lose up to 50% of their value in the first five years.
The car will make it to the asset section of your balance sheet, but it’s losing value with each passing year.
if you buy the car on loan, you’ll still be required to pay back a fixed amount of money despite losing value year in, year out.
When it’s time to dispose of the car, you’ll receive less money than you bought it for.
Hiring a car is easy to arrange. Call up a reputable car rental company, give them your preference and budget and they handle the rest.
You don’t have to spend hours researching, comparing, and testing cars to ensure you get a good deal
Disadvantages of Hiring a Business Car
This option is not with its downsides which include:
1. Mileage Limitation
Mileage restrictions differ from one rental car company to another.
Either way, you and your staff will have to stick to the pre-agreed mileage range.
There are instances where you can renegotiate the set limit but exceeding it will lead to extra charges
2. Monthly Payments.
You may need to account for monthly payments for the car. If you don’t want to think about these costs every month, then leasing may not be for you.
Important Tips for Hiring a Business Car
Before we step away from the benefits of hiring a car, let’s look at some elements of hiring a car.
- Check with the rental company to see the minimum lease agreement period.
- Establish whether you’ll be making monthly payments or deposit a small amount upfront and pay the rest when you return the car.
- Understand the terms and conditions of the lease to ensure that you can uphold them.
- Always check the quality of the car before accepting it. Look for evidence of use or scratches and take the car for a test drive. Ensure you and the company are on the same page regarding the condition of the car.
- Ask about the car assistance – maintenance or repairs – provided by the company.
Buying a Business Car
Now let’s look at reasons buying a company car may be a better option for your business.
1. You Can Customize the Car
Since the car is 100% yours, you’re free to customize it to suit your needs, including using custom paint. This is hardly possible with a leased vehicle.
You can also choose to sell the car at any point and recover some of the original investment amount.
2. No Limitation on Mileage
Need to travel out of town on business or to cover extra ground to meet client needs?
You won’t have to worry about paying an additional rate for the extra mileage or devise ways of covering up the actual mileage.
Disadvantages of Buying a Business Car
The other side of buying a company car includes:
1. Larger Capital Outlay
Whether you’re paying for the car upfront or taking a loan to finance the purchase, you’ll be tying a large amount of cash.
And it’s not just the purchase that you’ll be thinking about, but also operating and maintenance costs. Cars become expensive to maintain as they age.
Bundled together, this adds up to a larger capital outlay.
2. Selling the Car Can Be a Hassle
Phasing out an older car can be a hassling experience. You’ll need to advertise and find buyers who will pay the price you want or an amount close to it.
Should You Hire or Buy a Business Car?
Buying a company car works for some businesses while for others, hiring is the best option.
We recommend comparing your funding capacity, the impact it will have on your business, and your company’s operation to see which option works for you.