Should I buy or lease my next car?

When it comes to car ownership, it can have serious financial implications at both a business and a personal level.

Car ownership represents a commitment and it involves investing in something that will, inevitably, depreciate.

It also comes with the demands of service and maintenance, and issues around what to do when you need to replace your vehicle.

Car leasing and buying outright are different solutions to the same problem of providing consistent, reliable and affordable transport.

Here, we look at key factors which can have an impact on deciding whether to buy or lease a vehicle for business or for personal use.

Buying versus leasing for business

As a business you do not want to commit capital if you don’t have to.

Business car leasing provides an affordable, flexible alternative to owning vehicles outright.

A major factor in this is depreciation.

Typically, many popular models will lose between 45 and 50 per cent of their value in the first two years of their life.

This is effectively money the business has seen disappear, regardless of the benefits the vehicle brings.

Vehicle leasing, on the other hand, does not commit the company to a depreciating asset in the same way.

The car does not appear on the company balance sheet because it is leased and not owned.

That makes the leasing payments an expense, most of which they can deduct from their profits.

Car Leasing VAT

If you buy a car for your business, you cannot claim any the VAT back unless you use it solely for that purpose.

You must be able to demonstrate as much in terms of employee contracts or other written evidence.

However, if you lease a car for business, then 50 per cent of the VAT is recoverable.

This leasing disallowance applies to all the VAT, if the vehicle is used only for business and is not made available for private use.

Why buy a car for business?

There are reasons why you might choose to buy a vehicle for your business.

• There won’t be any mileage or condition restrictions and it will appear as an asset on your balance sheet.
• You won’t have monthly payments appearing on your company accounts, and you won’t have a contract to stick to if you buy the vehicle outright. If you take out a purchase hire agreement, you may be able to extend it to lower your monthly payments.
• You can end your agreement early, providing you can pay the settlement figure.

The benefits of business car leasing

• As we mentioned earlier, if you lease a car for business you don’t have to worry about depreciation or selling it on.
• Vehicle tax is included in the monthly lease payment, and you can opt to take out a service and maintenance package too, removing yet another administrative burden associated with running a company car.
• Business car leasing relieves a lot of the pressure for companies around compliance and fleet management.
• Leasing can free up money to spend in other ways, and it offers more flexibility than car ownership.

Buying versus leasing for personal use

Is it better to buy or lease your own car for personal use?

Many private users choose to buy one outright, but that leaves them vulnerable to depreciation.

You are the owner of an asset that will decrease in value and, the longer you keep it, the higher servicing and maintenance costs are likely to become in the future.

Personal Car Leasing, also known as Personal Contract Hire (PCH), can provide a much greater degree of flexibility for a driver.

It offers low monthly payments with the option of returning a vehicle at the end of an agreement and replacing it with a new one.

Leasing, under a personal lease agreement, provides a much greater degree of flexibility.

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What are the benefits of a personal lease arrangement?

• You don’t own the vehicle, so you only pay for its depreciation during the lease period.
• These monthly payments are, typically, much less than if you had purchased the car and they include road tax.
• Because payments can be lower, you have more options in choosing which cars you would like to drive, including luxury models.
• As with business vehicles, you can claim back 50 per cent of the VAT if you lease a car for personal use.

And, when it’s time for you to change your car or nearing the end of your personal lease agreement, you just drop it off back with your dealer.

You avoid being trapped in a cycle of expensive, monthly car payments, simply because you cannot afford a balloon payment.

You can also choose a comprehensive service and maintenance option as part of your lease agreement, to further lighten the burden of running a car.

Buying versus leasing: the best option

You may be thinking of buying a new car, whether for business or personal use, but before you make that decision, consider leasing as an alternative.

There are good reasons why it’s growing in popularity.

Car leasing gives you the car you want without the long-term expense, responsibilities and sometimes liabilities that come with ownership or a purchase scheme.

It’s a flexible solution for individuals and for businesses that can help you manage your resources and your finances, while meeting your transport needs.

Find out more about car leasing for yourself, or your business.

Contact LetsTalk Leasing on 0330 056 3331. You can request a call back, email us at contact@letstalkleasing.co.uk or fill in our online contact form and we’ll be in touch as soon as possible