Leasing vs owning vehicles – which is right for your business?

So you need a vehicle for your business, but do you lease or buy outright?

The vehicle leasing vs buying debate is one that many businesses encounter at various stages of growth, whether it is a first vehicle or a fleet. So is one option better for your business than another?

Kevin O'Neill from Sydenham Motor Group shares his thoughts on the value of buying and leasing vehicles for your business.

Buying

Buying a vehicle outright brings with it a high up front cost, whether that be a full payment for the purchase of the vehicle outright or a down payment with monthly loan repayments thereafter.

The advantage is that you will end up with ownership of the vehicle outright at the end of the loan repayment period. Buying is often a preferred option if you:

• do not consider a new vehicle every three or so years important
• travel a considerable amount of kilometres in your vehicle each year
• do not want to be locked into a fixed term contract
• prefer outright ownership over your vehicle

Leasing

There are generally two types of lease arrangement, operating lease and finance lease. Typically operating leases run for a period of 36 months with requirements to stipulate anticipated mileage at the commencement of the lease. There's also no right of ownership at the end of the lease term.

A finance lease, also referred to as lease-to-buy is normally written over a 46 month term with an option to make an offer to purchase the vehicle at the end of the term. There's need to stipulate mileage, and no penalty for excess mileage.

Leasing is the preferred option for many businesses for a number of reasons:

- Lease vehicles are fully tax deductible as an operating expense (but are eligible for personal usage and fringe-benefit deductions)

- Maintenance and insurance costs can often be covered in the monthly rental

- A fixed monthly cost of rental can be easier to budget within the business

- An operating lease means your vehicle will be recorded "off the balance sheet" which improves your business's gearing ratio

- You have the option of upgrading your vehicle at the end of the lease term (or purchasing it outright for the residual cost in the case of a finance lease)

What may be the biggest factor in deciding to buy or lease is the current rate of car depreciation in New Zealand. It's now not uncommon for a vehicle to lose half its market value within three years, so for many businesses the option of putting capital towards an asset that depreciates to this extent makes little sense.