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​Company Cars: To Lease Or To Buy?

Which is the smarter choice for your company?

4May

When it comes to supplying the necessary vehicles a company needs, there are basically three options. The options are to buy, lease or finance vehicles. There are several important considerations to take into account before making this important decision.

You'll want to think about who will be driving the vehicles, how many miles will probably be driven, and how long the company plans to keep vehicles. If you're not driving many miles, ideally between 12,000 and 15,000 per year, leasing may be a smart option. Leasing is also good for companies that don't plan on keeping the vehicles for more than three years. It's smart to lease if your company doesn't want to have a large initial cash outlay for vehicles since leasing is often cheaper than making car payments.

When Buying Is A Better Option

Buying can be a better choice for companies that need to use vehicles a lot, and that plan to put over 20,000 miles on them per year. When buying vehicles, the popular thought is that it's best to buy at the end of a vehicle's model year, normally in the fall. This is when many dealerships have specials to move inventory, and buyers can usually find options for loans with little or no interest. This helps companies hang on to their money by not having to incur interest charges.

If your company is sure that the car will be needed for more than three years, leasing may not make sense. After about three years, leasing becomes more expensive due to extra maintenance that needs to be done, and extra charges for wear and tear on vehicles that might be tacked on at the end of a car leasing contract. Some leasing companies are more lenient when it comes to acceptable wear and tear, others are more particular. Extra lease end charges can add up quickly, especially those for extra mileage (often 10 to 30 cents per mile over the stated limit) and charges for wear and tear.

Mistakes To Avoid When Leasing

The most common mistakes made by people and companies leasing cars are:

- A lease that's too long - If the car is needed for more than three years, buying is probably a better choice

- Not maintaining the vehicle - This can become costly, especially if damage has been done to the vehicle from neglect or from an accident

- Mileage estimation mistakes - Incorrectly estimating the number of miles a car will be driven per year can turn out to be very costly, especially when there is a surprise charge at the end of the contract of between 10 cents and 30 cents per mile. These charges add up quickly.

- Being unaware of lease-end charges - Companies that lease must be vigilant about the charges that could potentially be levied at the end of a lease. Surprise charges can include fees for ending the lease early, charges for excessive wear and tear and charges tacked on for market value adjustments if you choose to buy the car at the end of the lease.

Knowing Who Will Drive Vehicles

It's important to have records on file for anyone within the company who will be driving company vehicles. This is true whether vehicles are leased or purchased. You'll want to check employee driving records. It might be necessary to have employees go through a defensive driving school online to help them sharpen their skills, and to refresh their memories of state road laws.

You'll also want to check employee accident records to be sure only safe company drivers are allowed to drive vehicles. This is especially true when leasing, since the company may end up being responsible for much of the damage done to leased vehicles. Making a thoughtful decision about buying or leasing company cars can help to keep your company's transportation costs within reasonable limits.

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