Both buying or leasing a car for business use are viable options and depend entirely on the size of your business and the primary use of the car. It is always beneficial to keep track of your car’s total cost over the loan or lease term including monthly repayments, interest, mileage, maintenance, fuel, insurance, parking and tolls. Also make sure you determine the value of the car at the end of the lease vs. ownership period. Your accountant will be able to advise you on which expenses you can claim on your income tax whether you choose to lease or buy. Below are some benefits and drawbacks that come with both options.
| Leasing a business car | Buying a business car |
| No down payment or collateral | Requires an upfront down payment |
| Lower monthly repayments | Car loan repayment amount is higher due to interest rates |
| Leasing for long term costs more and don’t end up in ownership | Loan repayment periods are fixed after which the car becomes a business asset. |
| Exceeding the number of miles in your lease agreement increases your expenses. | No limit on usage of the car. |
| Leasing allows you flexibility to upgrade to newer cars regularly based on need. | Buying a car means costly repairs once the car gets older. |
| Different insurance requirements based on your business usage may amount to higher rental fees | Lower insurance premiums and liability rates |
| Car rental fees are tax deductible based on your business use percentage | Only the interest on car loan repayments are tax deductible |
| Depreciation in the car value may result in lower monthly rental fees | Depreciation on extra mileage reduces the asset resale value but not your loan repayment amount. |
Whether you choose to lease or buy a car for your business use should ultimately depend on your cash flow and primary use of a car. Take your time to review your options, analyse the cost vs benefit and also consider the tax implications of both options before you make your decision.
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