When the time comes to acquire a new vehicle for your business, there are many factors to consider. One of which is whether to lease the vehicle or finance it. While there are advantages to both, this decision usually comes down to your individual priorities.

What is the difference between leasing and financing?

By leasing a vehicle, you are agreeing to pay a certain amount to drive the car for a specified period of time. Leases generally have restrictions attached them- how many miles can be driven, modifications, etc.

Financing a car puts the title in your hand- at least once you've paid it off. However, even before the vehicle is paid off, you have full control over how much it is driven, any modifications you might want to make, as well as whether or not you want to sell it.

But what about the financial advantages?

Leasing- pros and cons

The pros of leasing a vehicle:

• Payments Your payments on a lease will generally be much lower than if you financed a purchase of the same car.
• New Car Since the life cycle of a lease is usually 36 or 48 months, this means that you get to drive a new vehicle every few years. If you're concerned about your business' image, this could be a big bonus!
• Maintainance Most leases come with worry-free maintainance built in to the contract. This can eliminate unexpected, costly expenses. 
• Tax Benefits The IRS allows you to deduct both the depreciation and the financing costs that are part of each monthly payment.

The cons of leasing a vehicle:

• Ownership Leasing means you can't sell the vehicle or trade it in to offset the purchase of your next vahicle. Additionally, since one lease will roll in to the next, you will always have a monthly payment.
• Fees A lease doesn't just cost you the amount of your monthly payment. You pay an acquisition fee to cover the dealer's costs to clean and sell the car once your contract ends. Heavy fees apply if you drive over the alotted mileage limit, if there are modifications to the car, and if there is excess wear and tear. You also face a steep fee if you choose to end the contract early.
• Long Term Ultimately, it is more expensive to lease instead of financing a vehicle.

Financing- pros and cons

The pros of financing a vehicle:

• Freedom The car is yours to do what you please- sell it, trade it in, drive it as many miles as you want! All without facing the steep fees that come with a lease.
• Taxes The IRS allows you to deduct costs related to a business vehicle as well as depreciation. Be sure to keep good records!
• Cost In most cases, financing a vehicle is cheaper than leasing.

The cons of financing a vehicle:

• Rapid Depreciation A new car can lose up to 25% of its value in the first five years of ownership.
• Initial Cost Usually, financing a car requires a higher down payment than a lease. Monthly car loan payments are also generally higher than lease payments.

If you would like more information about acquiring vehicles for your business, click here to schedule an appointment with one of Gold Standard's seasoned tax accountants.

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