Working Wheels: Ways to Finance Your First Business Vehicle

Buying your first business vehicle can be an exciting – and daunting – experience. Should you lease a vehicle or buy one? With the plethora of vehicle purchasing methods available, you’ll need to carefully consider how each option can benefit your business. Below are the most common ways of buying or financing your first company vehicle.

Cash

An unusual option for businesses is to buy a vehicle in cold, hard cash. The benefit of buying a vehicle with cash is that there is nothing to pay after the purchase of the car. You’ll have no loan to repay, and your vehicle will never be repossessed if you miss payments. You are in control of what happens to your car. If your business needs to maintain a level of liquidity, however, buying a vehicle with cash may not be a good idea. You could end up taking a loss on the vehicle in the short-term, as any revenue earned through its use will need to outweigh a sharply rising depreciation rate.

Business Loan

A standard, unsecured business loan is a great option if you already have a business bank account and are in good standing with your local branch. The loan uses your business, rather than the vehicle itself, as collateral. The loan can be used to help cover any maintenance costs for the vehicle, or for other business needs.

The biggest advantage of using a business loan to buy a vehicle is that you own the vehicle outright from day one. You have complete freedom to sell, lease, modify, or do anything else you choose with your vehicle.

The downside to using a business loan is that you are placing your entire business on the line. if you fail to make payments no the vehicle, you will be putting your entire business at risk. Another disadvantage is the high interest rate. Since the loan is unsecured, you will pay more interest than if you had opted for a Business Contract Hire (BCH).

Leasing (Business Contract Hire)

Leasing is becoming an increasingly popular way to purchase a non-luxury vehicle. In 2013, leasing accounted for 23% of new car sales, according to Edmunds.  Leasing a car offers several key advantages. Monthly payments are low, freeing up your cash for other aspects of your business. A leased car can be modified to your specifications, so you get all the fun of using a brand new car without a lot of the financial downsides. If you plan to replace the company vehicle every few years, leasing is the most cost-efficient option. You’ll always have the newest model, the highest fuel efficiency, and the most modern aesthetics. You’ll also save money on car repairs, as most components on new cars are covered by extensive manufacturer warranties. And with a Truck Bed Tonneau Cover, your leased vehicle will always look pristine. Tonneau covers also help improve gas efficiency, according to the Specialty Equipment Market Association (SEMA).

Hire Purchase

A hire purchase is an increasingly popular method of purchasing a vehicle. If you don’t have much cash, a hire-purchase lease lets you pay a small deposit followed by monthly payments on the remainder of the cost of the vehicle. This method of buying a vehicle allows you to maintain a level of liquidity while giving you access to a vehicle you wouldn’t otherwise be able to afford.

Hire-purchase financing is secured using the vehicle as collateral, so getting approved for this type of loan is usually easier than with other types of loans. If you fail to are payments, however, the vehicle will be repossessed by the loan company. As with any other auto loan, the vehicle is not truly yours until the repayment period is over.

Buying vs. Leasing: Which One is Right for You?

When deciding between leasing and buying a car, consider the total cost of running the vehicle. Factor in your insurance payments, maintenance costs, road tax, and fuel consumption habits. You should also consider the needs of your company. Depending on the nature of your business, leasing may be the more cost-effective option. If you have the cash and wish to maintain as much control over your new vehicle as possible, however, use cash. There is no single answer that suits all business owners. Listen to your gut, do your research, and speak to your financial advisor about which car buying option works best for you.

Danny Rios owns and operated Ameraguard Truck Accessories. With over 10 years experience in helping customers customize their vehicles to their complete satisfaction.