Whether a business is new or long-established, it’s necessary to decide whether it would be better to lease company vehicles or buy them outright with a business vehicle loan. The answer may not be the same in all cases. Most companies, however, establish a policy that dictates whether lease or purchase is generally preferred.
Leasing Company Vehicles
There are three types of lease arrangements.
Operating leases normally run for 36 months. The anticipated mileage is stipulated at the beginning of the lease and there is no right of ownership when the lease ends.
Finance or lease-to-buys typically last 46 months and include an option to purchase the vehicle at that time. There’s no requirement to stipulate mileage or be penalized for excess mileage.
Sale and leaseback allows a business to sell their vehicles to the leasing company and lease them back. This removes assets from the balance sheet and converts them to operating capital.
Pros of Leasing
A fully tax-deductible operating expense
Eligible for fringe benefit and personal use deductions
Monthly fee usually covers insurance and maintenance expenses
Fixed monthly cost is budget-friendly
Upgrade or purchase vehicle at end of lease
Avoid using capital for an asset that depreciates 50% in 3 years
Cons of Leasing
Expensive penalties for excess mileage
Leasing charges are permanent costs since vehicles are never owned
Vehicle costs are higher than if paid for up-front
Maintenance is at discretion of leasing company and can be delayed or not covered
Buying Company Vehicles
Buying a vehicle with a commercial vehicle loan is more cost-effective in the long run. When the business vehicle loan is repaid, the vehicle is owned outright.
Pros of Buying
Fixed finance cost until paid off and then expense is eliminated
Best for those who don’t need a new vehicle every three years and who drive a lot
Vehicle can be customised
Outright ownership is a plus
Maintenance is performed where and when desired
Have equity so can sell when wanted
Buy the desired vehicle. Not limited to the leasing company’s inventory
Cons of Buying
Maintenance costs aren’t predictable
Higher up-front costs
GVK Finance prides themselves on being a vehicle asset finance company you can trust. They offer custom finance and lending solutions to suit your business. Whether you need to finance one vehicle or a fleet, at GVK Finance you’ll find the commercial financial service providers in Auckland and even for small and mid-sized businesses in all over New Zealand. Visit our website (www.gvkfinance.co.nz) to find out more about our commercial vehicle finance and other financial services.