Your Next Business Vehicle: Making the Decision to Buy or Lease

It’s the age-old question: should you buy or lease? Both have their advantages and disadvantages. So, before you move one way or another, here are a few things to think about.

Why You Should Buy

First, let’s start with the obvious. You own it. That’s the big advantage of buying a vehicle. You can sell it when you want. You can sticker it up, put your logo on it. Do whatever you want with it. You can also drive it into the ground if you wish. No one will care. You can put a gazillion miles on it and there’s no penalty. In fact, it will only help you come tax time.

The tax advantage is huge with a vehicle you own. You have the choice of writing off the mileage or the expenses. And, if you own certain hybrid vehicles, you might get extra tax breaks.

On top of that, you don’t have to deal with any of the nonsense of a leased vehicle, like mileage limitations. Most leases will limit driving mileage to between 12,000 and 15,000 per year. So, right off the bat, you’re capped on the tax deduction for mileage (if you take that deduction). And, on top of that, you have to play the hand you’re dealt. In other words, when you get a leased vehicle, you can’t modify it in any way.

Also, you sort of have to watch the small print. Leasing companies can put almost anything in there to restrict how you use the vehicle.

You have to deal with early termination, the residual value of the vehicle, and any excessive wear and tear on it.

And, if you get into an accident in a leased vehicle, and have to contact, there may be extra charges on your lease bill when it comes time for trade-in.

Why You Should Lease
With all of the advantages to buying, why lease? Well, because there are tax advantages. Monthly lease payments are tax-deductible and easily quantified using a free tax calculator. So, if you drive, but don’t drive enough for it to be worth writing off the mileage, this can be a huge win. You can’t write off loan payments the way you can lease payments and that can be huge.
The turnover is easy, much easier than for a bought vehicle. You return the vehicle at the end of the lease, wash your hands of the deal, and that’s it. When you buy a vehicle, you have to bother with maintenance and finding a seller, or getting a good trade-in on it.

There are no maintenance expenses with a leased vehicle. All that’s handled by the leasing company.

Usually, your monthly payments are lower with a leased vehicle, too. The downside to buying is that you have that huge loan payment or a huge cash outlay, and it really jams up your cashflow.

Finally, when it comes time to sell, your purchased vehicle is worth a lot less than when you first bought it. There’s no equity, so to speak. With a leased vehicle, none of that matters. You can keep getting new vehicles for the same or similar price as what you paid for the leased vehicle (on a monthly basis).

If you need to keep turning over your lease, this is a huge advantage.

So, in sum, you should buy a vehicle when you need the ability to put lots of miles on the vehicle. Lease when you don’t want the hassle of ownership and don’t want to take the depreciation hit.

Keith Smith is a business owner with a fleet of business vehicles in double figures. He occasionally writes on the topic of business vehicles for blogs, sharing his knowledge and tips.

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