BUY OR LEASE COMPANY CARS

A car’s value depreciates the same whether leased or purchased, but with leasing you have the option of putting money you save on monthly repayments into more productive investments.

Company cars; to lease or to buy? – that is the question. But the answer is not as cut and dry as may be desired, as it depends on a myriad of factors and each option comes with its own pros and cons.

When making a decision on whether to lease a vehicle or a fleet of vehicles for your business, you will need to consider financial comparisons and personal priorities.

Ask yourself if upgrading to new vehicles every two years, therefore eliminating the risk of major repairs, is more important than owning a new vehicle and building a long-term equity, albeit with initial higher monthly charges.

When buying, you pay for the entire cost of the vehicle, put a deposit on the agreed purchase price, pay GST either in cash or as part of the overall loan costs and pay an interest rate as determined by the loan company and based on your credit history.

Monthly repayments are made and as expected, a portion of every payment you make is lost to depreciation and finance charges. This leaves little by way of resale value, but cars are not typically purchased as investments and you can decide to trade in at anytime.

When leasing, you pay for only a portion of the car’s actual cost being that which you use during the time you’re driving it. Monthly charges are lower than those of purchasing, but long term it will cost more as you will be subject to other charges such as fees and security deposit.

At lease end you may either return the vehicle and lease a later model, or buy it for its depreciated resale value.

As an example, if you lease a $40,000 car which then has say, an estimated resale value 24 months later of $32,000, you pay for the $8,000 difference (depreciation), plus finance charges, plus fees.

When you buy, you pay the entire $40,000, plus finance charges, but you own the cars resale value.

A car’s value depreciates the same whether leased or purchased, but with leasing you have the option of putting money you save on monthly repayments into more productive investments. So leasing does not build equity as purchasing does, however purchasing means the buyer has equity at the end of the loan, effectively purchased by making higher monthly payments.

So in summary, the monthly cost of leasing versus buying will be less in the short term, about the same in the medium term and always more in the long term.

Lease if you enjoy having a new car every two or three years, don’t care about building ownership equity, don’t like trading or selling used cars, and drive an average number of kilometres in a car under warranty and with the latest safety features.

Buy if you prefer to build up trade or resale equity, like the idea of ownership and driving the car for years to spread out the costs, don’t mind higher monthly repayments and are willing and able to repay your loan in as short a time as possible and are prepared for the warranty to expire.