Many businesses hire their cars long term rather than purchasing them because of a number of benefits. Cost is usually top of this list, especially for smaller businesses that don’t have a lot of capital floating around. “You get the flexibility of low cost car hire without the penalties and costs that are usually associated with a long term lease” says Simon Howard at Norwich car hire company, First Self Drive.
This is because rental companies will usually arrange out many of the less glamourous aspects of car ownership too, such as maintenance and breakdown cover. You will also find that you can afford much newer and more efficient vehicles with a smaller budget. There will also be the chance for an upgrade a lot more quickly than would usually be financially viable.
Here are some of the reasons why leasing a car long term is a smart move for a small business owner in a bit more detail.
Renting a car is a good move in terms of your company’s finances. Even if you do have the budget to buy a new car for your business, hiring a car long term could be a much better option. If you decide to buy a car outright, you are immediately tying a large amount of money in something that will only decrease in value. There are sure to be much better uses for this capital in other areas of your business, especially when there are such great deals out there for companies looking to rent vehicles long term.
The way that car leasing usually works for businesses is that a car is hired for a fixed amount of time (usually around two or three years) and you make monthly payments for the duration of the hire. At the end of the agreed period you will have the option of giving the car back, trading it in for a newer model, or agreeing on a new leasing term for the same car. Spreading the payments out month-by-month is an attractive option, especially for those on a smaller budget.
How much you should expect to pay each month depends on a few factors. Firstly, the more expensive the car, the higher the monthly lease is likely to be. However, the dealer will also take into account how quickly that particular model will decrease in value. If a car is going to lose value very quickly it will have a higher leasing fee as the leasing company will need to make up that loss. It is worth doing some research into this to make sure the model you want will hold its value for a good amount time. Another factor is how many miles you expect to be driving in the car. The more miles you drive, the more the value of the car will drop. Your leasing agreement will include a mileage limit and it is important that you decide on a realistic number here because you will be charged for each mile you go over this limit.
Leasing a car in this way is a very tax efficient practice for businesses. Based on the CO2 emissions of their rental cars, companies are able to offset a percentage of the cost of the monthly rental against corporation or income tax. If your car is very efficient this could be up to 100 per cent.
- Maintenance and breakdown cover
Many rental firms offer a whole host of benefits that help with the usually expensive business of owning a car. For example, you can often expect all maintenance costs to be included. It is certainly an advantage that the car will be serviced for you and without the risk of any unexpected bills for car parts which can be hugely expensive. Breakdown cover and the manufacturer’s warranty are usually also included.
- Newer and more efficient vehicles
If your business is just starting out, you are likely to be able to afford a much newer and efficient vehicle via renting than you would if you were going to buy one. You could be driving a brand new car every few years. The car is likely to still be in warranty if it’s that new and that could save you some money in maintenance costs. There is also no need to worry about the car depreciating in value because you don’t own it. You don’t have to go through the hassle of selling it either as you simply give the car back to the hire company at the end (sometimes you are given the option of buying the vehicle over time). Many firms also offer to update the leased car relatively regularly too. Newer cars also tend to be much more fuel efficient which will help with the day to day running costs.
Practical things to consider when renting a car for business:
When choosing your car hire company and then the vehicle itself there are a number of things to consider. The first thing to do after you’ve done a bit of research into what’s available out there is set yourself a budget that will cover what you need in a vehicle. Then you need to make sure you’ve asked yourself the following:
- What is the lease going to cost you each month? Is it in your budget?
- Does the vehicle fit your purpose?
- Is there a mileage limit and is it appropriate for how much you are expecting to drive?
- What cover do you get?
- How efficient is the car? And how much of the rental will you be able to offset against tax?