There are many advantages to choosing company cars for your business including the benefits to employees, the boost in image for your company and the cost compared to renting. However, to make your fleet of company cars truly cost-effective you’ll need to finance them in the most suitable way. So what company car finance options are available and which is right for your business?
If you choose to purchase company cars for your business the key advantage is ownership. The vehicles belong to the business and are treated as assets. This means that you can sell after a set period of time or even if a key employee leaves the business, and recoup some of your initial outlay.
The main disadvantage of purchasing company cars outright is that if you have to pay the full cost of the car – either in a lump sum or in monthly payments. A large down-payment is usually necessary to cut high interest levels and this can seriously affect your cash-flow, particularly if you require several vehicles.
Also remember that by purchasing a company car you take on responsibility of ownership. This means you must organise the car’s insurance, maintenance and repairs.
Car leasing is the preferred option for many companies. There are several advantages to leasing and contract hire of a company car. For example, payments will have a smaller impact on the cash-flow than purchasing outright and only a relatively small down-payment is required.
In addition, you can enhance the image of your business by leasing a company car. Due to the high residual values of luxury vehicles you could afford to lease a car that would simply be unaffordable to buy outright. Having employees drive around in these high-class vehicles reflects a better image for your business. At the end of the lease period you can also take out new leases on newer models without the hassle of re-sales.
Most company car leasing deals will incorporate maintenance packages. Insurance can be taken out too. The employee will usually pay less or no tax on the car and if the company car is used for business purposes it should reduce other tax costs.
On the downside you will have to stick to strict mileage limits which can be frustrating if your business needs fluctuate. You will also never have ownership of the cars.
Other company car finance options
Though leasing and purchase are the main options available, there are additional choices for employers looking to use company cars:
- Daily rental: If you only require a car for a few days or a short period.
- Finance lease: The vehicle is purchased from a supplier and your business uses the vehicle as part of an effective rental. At the end of the contract you must make a payment equivalent to the residual value either by selling the car or buying it outright. This is a good solution for businesses with short-term cash-flow problems.
- Lease purchase: You lease the company car with the agreement to buy at the end of the lease period.
- Personal contract purchase: You lease the company car with the option to buy at the end of the lease period.
- Sale and leaseback: Your company car fleet is sold to a leasing company who then leases the vehicles back to you.
The key to taking control of a company car is to think about the purpose of your vehicle. If you only need it for a short-time for example, then you will be best off with a daily rental or short-term car leasing deal.
Over longer periods leasing a company car is generally more cost-effective and allows you to update your fleet and potentially drive better cars. However, you will have to stick to a mileage limit so think about whether your journeys fluctuate and how you plan to use the vehicles.
Whichever option you choose, check out ContractHireAndLeasing.com for the leading company car finance deals.
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