Leasing Versus Owning a Corporate Car
The decision between leasing versus owning a corporate car can be quite difficult, as there are a lot of factors that you must take into consideration before making the choice. At Prasad & Company LLP, we believe that you should be informed of all the information that you need to choose between leasing versus owning a car. Here are all of the factors you should be aware of before you make your decision:
1. The Difference Between Loan Payments and Lease Payments
When you purchase a car, you legally own the vehicle. However, you will be required to make loan payments for an amount that you will have to pay over time. This happens even if the value of the car depreciates below the price you paid for it. This can easily happen if, for example, you get into an accident. If you choose to lease your corporate car, then you legally don’t own the vehicle. When you sign a lease, you agree to a term, which usually is an average term of three years. After term, you have to return the vehicle if you choose not to purchase it.
2. Upfront Costs
Upfront costs are another factor that you must be informed about before you make a decision between leasing versus owning. If you choose to buy your vehicle, then the upfront costs will include cash price, down payment, taxes, registration, and other fees. However, the upfront costs differ if you choose to lease the vehicle, as they can include the first month’s payment, a refundable security deposit, an acquisition fee, down payment, taxes, registration, and possibly other fees.
3. Monthly Payments
Another factor that you should be aware of is the difference in monthly payments. When you own a vehicle, loan payments are more expensive than lease payments. Loan payments require you to pay off the price of the car along with additional costs such as interest, finance charges, taxes, and fees. However, if you lease the vehicle, you will owe less every month due to the fact that you are only paying for the depreciation during the lease term plus interest charges, taxes, and fees.
4. Early Termination
One of the advantages of owning your corporate car is that you are able to sell or trade the vehicle at any time. This would allow you to earn money from the sale, which can then be used to pay off the rest of the loan balance. However, if you attempt to terminate the lease for your vehicle early, extra charges will be applied. The charges can be just as expensive as keeping the car until the end of the lease term.
5. Future Value and Mileage
When you own your corporate car, the value over time will depreciate, but the cash value is available to use at your disposal. Another important factor that you must take into account, especially if you commute to work, is that you don’t have to worry about how many kilometres you drive. If you choose to lease, you won’t have to be concerned about how the future value affects you financially. However, the negative side of leasing is that you won’t have equity on the vehicle. In addition, if you decide to lease a vehicle on a term, then there is a maximum amount of miles that you drive. The average kilometres allowed for most leases is between 12,000 to 15,000 per year, and if you exceed the set limit, then you will most likely be charged for extra fees.
Before you make this difficult decision, remember to take into account all the factors that we detailed for you in this blog post. If you feel that you still have either questions or concerns in regards to choosing between leasing versus owning, then contact us at 416-226-9840. We would be happy to assist you!