Lease or Buy?

Lease or Buy?

If you’re company’s vehicles are similar to others from around the country, they might be getting a little rusty. The bumpy road of the Great Recession caused many firms to stretch the lifespan of their cars and trucks well into the long haul. According to the Bureau of Transportation Statistics, the current average age of vehicles on the road today is about 11.7 years across both car and truck categories. This has caused the average turnover rates for company vehicles to extend to its current rate of about 14.8 years.

As your company sets out to replace its vehicles, you’re going to run into the old conundrum of whether to lease or buy. It’s a tough question to answer directly because buying or leasing can present different types of advantages based on a buyer’s unique situation. There are still several key things to keep in mind as you make your own determination.

 

How are you paying?

The first step in determining whether to buy or lease is knowing how your company is going to pay for it. If you’re currently flush with capital and are able to make the purchase outright without taking on loan interest, then purchasing may be your best option. Even if you have low-interest financing, a decision to purchase should depend on the expected length of time you plan to use the vehicles and whether investing in new equipment is the best use of your capital funds.

If the vehicles are going to be in use over several years and constitute a good investment for your firm at this time, then you should lean toward purchasing. Purchasing may also be helpful if your goal is to add more equity to your company through new assets.

If your company doesn’t have enough capital to purchase vehicles outright, as most don’t, then leasing becomes more viable. A lease would not impact your debt-to-equity ratio like financing would, it typically doesn’t require a down payment, and in many cases can have lower monthly costs than loan payments.

 

How will it impact your taxes?

There are different financial advantages to consider surrounding your decision to purchase or lease. With an operating lease, for example, you can deduct your lease payments from your income statement. With other types, like a capital lease, you can claim depreciation and can deduct interest expenses from your lease payments.

Conversely, purchasing the vehicles can have its own advantages. For example, vehicle value depreciation can be claimed on a company’s taxes. Owners also have an asset they can trade in or auction off when it’s time to refresh their vehicles.

 

Do you plan to maintain?

If you buy your vehicles, then you’ll be in charge of taking care of them. For some companies, this isn’t a problem. A landscape firm with ten trucks, for example, may be able to do most of its own maintenance and could partner with a local garage for service discounts. But there may still be unpredictable costs or, even worse, lost time caused by a maintenance need.

Leased vehicles, on the other hand, will be maintained by the lessor. Clauses in leases typically allow for a courtesy vehicle to be provided during maintenance points, keeping your employees mobile and productive during servicing. This would also prevent unexpected maintenance costs. Companies with lots of vehicles often lease because it helps them control costs and eliminates the need to have its own maintenance infrastructure.

 

How often do you need fresh vehicles?

If you’re in an industry that requires your employees to have the latest and sharpest-looking vehicles, it’s probably better to lease them. Purchased vehicles tend to get retained by companies longer, and they generally lose their luster as they age. With leasing, you can equip your employees with the latest vehicles more frequently.

It’s important to note, though, that you can’t make very many changes to a leased vehicle. The lessee is usually barred from making modifications or upgrades. So, if your company needed to install a new piece of equipment or technology into its cars, those cars would most likely need to be owned by the company.

 

Will you be handling the paperwork?

One area of consideration that’s often overlooked is the time it takes to manage all the administrative needs of vehicles. There’s a lot of paperwork – titles, registrations, insurance coverage, taxes, etc. – and time is money. But more paperwork provides more data, which could be important for some companies.

Owning your vehicles gives you much greater control over your data. Leasing gives you greater convenience. A cost-benefit comparison should be made as to whether it would be more beneficial for your company to handle these items in-house or if having an outside organization manage them would be more suitable.

 

Get Crunchin’ Those Numbers.

Due to the variables, every company is going to have to evaluate its own unique position on whether it’s better to lease or buy. But in a general sense, if you plan to refresh your vehicles regularly and your company would rather avoid maintenance tasks, leasing may be the way to go. If you plan to use the vehicles longer and don’t mind the maintenance, then purchasing is your best bet. Just be sure to understand your company’s unique position before choosing.

Category Bottom Line, Features