When you’re looking for a new car or van for your business, there’s a lot of choices. Not just in terms of which vehicle to go for, but how to fund it.

Most people are pretty familiar with buying a new car outright, but leasing is still unfamiliar territory to some, despite its growth in the UK. This page explains the benefits of both options and will help you decide which is best for your business. 

What is leasing?

Many businesses choose to lease equipment, vehicles, and tools for their business, as it can be a more cost-effective alternative to buying outright, especially when funds are tight.

With leasing, you make fixed monthly payments. At the end of the lease period you won’t own the equipment, vehicle or tools, but may have the opportunity to extend the lease agreement, or start a new one. 

Leasing is popular among businesses of all sizes who rely on vehicles, whether that's a single van or an entire fleet. For example, a startup catering company needing several vans to deliver food to their clients may not have the capital to purchase the vehicles outright, but could afford smaller monthly payments.

Video: The pros and cons of leasing and buying equipment

Informi

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The following video highlights the pros and cons of leasing business equipment against buying it outright.  We run through the different approaches, explaining why a business may wish to lease or buy equipment.

 

What do I want for my business?

 
The money

 

Leasing

Buying

  • Fixed monthly payments. Know exactly what you’re spending every month.
  • No regular finance payment.
  • Leasing companies buy thousands of vehicles every year, so have a great buying power. This can often mean better deals for you.
  • Large initial outlay, ties up money in the vehicle.
  • Low up front cost, freeing up money to invest elsewhere in your business.
  • You have full control over the purchasing process.
  • Claim back 100% of the VAT if the vehicle is used for business only. 
  • Purchase cost is tax deductible.
 
  • You keep the profit if you sell the vehicle for more than expected.

 

The risk factors

 

Leasing

Buying

  • No depreciating asset on your books. The reducing value of the vehicle is the leasing company’s problem.
  • Vehicles lose value quickly. As the owner, you take that risk.
  • Maintenance cover can be included in the monthly rental, to cover any regular servicing or unexpected repairs. This minimises one-off bills you weren’t expecting to pay.
  • Maintenance costs will often increase as the vehicle ages.
  • Often incurs costs if you need to end your contract early.
  • Flexibility to sell whenever you need to.

 

The hassle

 

Leasing

Buying

  • At the end of the contract, just hand the vehicle back and the leasing company takes care of selling it on.
  • You’ll need to find a buyer, and try and get the price you want.
  • You’ll need to know what mileage you’re going to do, so the mileage allowance can be set accurately. (This can sometimes be renegotiated during a contract.)
  • Aside from the effects on your price when selling, there are no rules around how many miles you can do, or the condition of the vehicle.

So should I lease or buy?

Leasing isn’t right for everyone, and neither is buying. There are lots of things to consider, including the vehicle you’re interested and your personal or business circumstances. You should compare both funding methods, and see which works out better – you might be surprised.

Next Steps

Use this interactive tool to work out which option is best for your business

It doesn’t have to be difficult to figure out what’s best for you. Check out Arval’s ‘lease or buy conundrum’ to compare leasing and buying, for whichever car you want, to help you make your decision.

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Brought to you by:

Arval

Arval UK is a leading provider of vehicle leasing and fleet management solutions for businesses of all sizes. We're here to help make sourcing and running business vehicles easy.

Based in Swindon for over 40 years, we lease cars and vans. Any make or model, we can help y...

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