The Difference Between Buying and Leasing
First, let’s cover some of the main differences between buying and leasing. When you buy a vehicle outright, you’ll be responsible for paying the full cost of the vehicle; depending on your circumstances, you may take out a loan to cover these costs. For example, if a vehicle costs $100,000, you may pay $100,000 directly, or you may make a down payment of $20,000 and take out a loan to cover the remaining $80,000.
In any case, buying the vehicle means you’ll own it entirely. From that point on, you can use and manage the vehicle however you choose.
If you lease the vehicle, you won’t own it. Instead the owner of the vehicle will essentially rent it to you. You’ll be responsible for covering an initial deposit, and potentially some fees associated with the lease agreement, but from then on, you’ll be responsible only for a monthly lease payment. Depending on the nature of the lease agreement, the owner may be the one responsible for taking care of the vehicle. You may or may not also have to deal with certain restrictions about how the vehicle is used (such as how many miles it can be driven).
If your company requires a vehicle (or several), you’ll need to decide whether to buy or lease those vehicles. For example, if you own a trucking company, you’ll need to figure out a way to acquire and manage a fleet of commercial vehicles.
Leasing could be one of your best options here. But why is leasing so advantageous?
The Advantages of Leasing
So why is leasing so advantageous?
- Less upfront capital required. First, leasing a vehicle requires far less upfront capital. You’ll still need to make a down payment, of sorts, in the form of a deposit (or paying for lease-related fees). However, you won’t need to generate as much cash as you would if you were buying. This is especially helpful for new businesses with limited budgets, or those trying to operate as lean as possible. It allows you to get a vehicle quickly, without having to save up or make sacrifices in other areas of your budget.
- Lower monthly payments. In most cases, leasing a vehicle will result in a lower monthly payment than buying one. If you’re worried about your monthly cash flow, or if you’re keeping a close eye on the profitability of the company, this can help you achieve your goals more consistently.
- Flexible arrangements. Most companies need to remain adaptable if they’re going to survive. They’re not sure what demand, market conditions, or competition will look like next year, let alone 10 years from now. Leasing a vehicle for a year gives you flexibility; you can decide whether you want to renew the agreement for another year or whether you want to choose another path. If you buy a vehicle, you’ll be stuck with it indefinitely – even if you no longer need it for your business.
- Minimal maintenance. Depending on the arrangement, the owner of the vehicle may be responsible for maintenance and/or repairs on the vehicle. You can simply bring it in on a regular basis and have all the work done to keep it in good condition. If you buy a vehicle, you’ll have to do the work and pay the money to maintain it yourself.
- Agreement versatility. Lease agreements don’t all look the same. They may have similar contractual terms and similar foundations, but they may offer different benefits, durations, and other factors. When you decide to lease, you can review a number of different options and find the agreement that best fits your business, rather than being stuck with one path forward.
- Tax benefits. You can also take advantage of the tax benefits associated with leasing a vehicle. In most cases, you’ll be able to write off the full cost of your monthly lease payments. If you have multiple vehicles to lease, this can add up to massive tax savings.
- No struggling to sell a used vehicle. One of the advantages of buying a vehicle instead of leasing is that you’ll have the opportunity to sell the vehicle later on, making some of your money back in the process. But dealing with used vehicles and trying to sell them on the market for a decent price can also be a hassle; with leasing, you won’t have to bother.
Leasing isn’t right for every company or every situation. If you have a lot of cash to spare, or if you want to make sure you have as much flexibility as possible to use the vehicle as you choose, buying may be the superior option. Make sure you review your financial options carefully before you decide to move forward.