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Leasing or Owning Your Business Vehicle: What’s the Best Option for You?
Lease or buy? That's the question. Dive into the pros and cons of leasing versus owning a vehicle. Whether you're aiming for short-term convenience or long-term ownership, we've got the insights to help you decide.
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Building the right tech stack is key
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How to choose the right tech stack for your company?
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What to consider when choosing the right tech stack?
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What are the most relevant factors to consider?
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What tech stack do we use at Simpletech?
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Want the Cliff-Notes?
The decision mainly depends on how frequently you plan on replacing your vehicles:
Short-Term: If you want to replace you vehicle frequently, leasing is probably the better option. You’ll get a new car every few years and you won’t have to worry about vehicle value.
Mid-Term: If you want to keep your vehicle for more than a few years, either option will suit you. If you drive a lot, buy. If you drive less than 15k miles per year, consider a lease.
Long-Term: If you want to keep you vehicle for the long-haul, owning is the solution for you.
But, like many of the things we discuss…there’s a lot more to this decision than meets the eye. So, keep reading if you want to know more.
Major Advantages of Leasing a Vehicle
- You're driving a new car, thus less time spent in the shop
- You can drive a higher-priced, better equipped vehicle for less than the cost of purchasing the same vehicle
- Some leases include free oil changes and other scheduled maintenance
- You won’t need to consider changes in the vehicle value over time, because at the end of the lease you just turn in the car
Disadvantages of Leasing Vehicle
- It will usually cost more than an equivalent loan to purchase a vehicle, if you’re looking to keep the vehicle at the end of the lease
- Monthly payments go on forever if you’re continually signing on to a new lease at the end of your lease term
- There are mileage restrictions, so if you drive a lot, it most likely will not make sense to lease a vehicle
- No modifications can be made to the vehicle
Major Advantages of Owning a Vehicle
- You own the vehicle and can do anything you want with it
- You can sell or trade-in your vehicle at any time
- You’re free to drive as many miles as needed
- You can customize the vehicle however you please
Disadvantages of Owning a Vehicle
- Loan payments are typically higher than lease payments
- Typically the up-front costs are higher due to taxes, registration and other fees
- You will have to handle the selling/trade-in process when it’s time to sell your vehicle
- You will need to perform maintenance and repairs to keep the vehicle in good shape
- The vehicle’s value will fluctuate over-time and could be worth less when you sell it, than it was upon the purchase
Can you give me an example of the potential cost difference?
When purchasing a vehicle, it’s pretty simple math. If you’re looking to get a $30,000 car, you’re going to have to finance $30,000 or pay $30,000 in cash up-front - in this example we are not including taxes, registration or fees (which will vary, based on the vehicle). Under a typical 60 month car loan, you can expect to pay $500 per month.
On the other hand, if you’re going to lease that same $30,000 car, you’re financing the expected depreciation over the term of the lease (typically 36 months/3 years). At the end of the 36 month lease, the vehicle is expected to have a value of $20,000 (which the dealer will calculate).
So, to find the expected depreciation you’re responsible for paying, all you’d do is take the purchase price ($30,000) and subtract the value of the car at the end of the lease ($20,000), leaving you $10,000 to finance over the term of the lease.
In other words, under the lease you’re paying $277.78 per month for 36 months and if you purchase the same car with a loan over 60 months, you’ll pay $500 per month. Total out of pocket cost for the lease over 36 months is $10,000, whereas the purchaser pays $18,000.
Which Route Should You Take?
So, which is the better option for you? It really depends on your individual situation and your preferences. If you want a new vehicle every couple years and you’re okay with a higher cost over the long-term and the mileage restrictions, leasing may be your answer.
If you want to hold on to your vehicle and eventually have no monthly payments, you’ll want to purchase the vehicle. Additionally, as mentioned above, if you plan to drive a lot and want to modify your car, a lease won’t be in your best interest.
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