If it is time for you to renew or replace a vehicle in your company’s fleet, then what options are open to you? Must you only pay up front for it, or are there other, better, methods to replacing vehicles?
1) Buy the car with cash
If you can afford to pay for the whole cost of the brand new car in one go, then this may seem to be the option for you. Straight from the start the vehicle is yours in its entirety, along with all future bills.
The downside of owning the vehicle, which you can sell if you need to raise cash, is that although you might pay all of the cash in one go, you may have to write off the costs of the new car over several years. This can be a huge tax disadvantage and might cost you dearly over time.
2) But the vehicle with a loan
Very similar to buying the new vehicle outright, here you own the whole car from the start. And because you are paying for the purchase via a loan more than some years, the repayments can be closer to matching written off value of the car. So the tax problems may not be so noticeable. But the problem is the loan.
Within no time at all from taking the car away from the showroom the value of the car has dropped and could even exceed the value of the loan, because car loans could have stacks of interest charges. Plus, should you sell, or lose, the vehicle you still have to pay all of the installments and there are no benefits for early repayment.
3) Rent the vehicle
Renting a new car for your company is another option. Here the tax writing off is not an issue as you declare the price of the rental fees in the accounts. Plus, should the car suffer any breakdowns, it is then up to the rental firm to replace the car, get it serviced and back on the road. The rental payment will also cover insurance, taxes and wear and tear of the tyres, brakes and so on.
However, there is a big problem. After a year or two of payments, you have nothing to show for it. The payments do not give you an asset at the end of it. Having said that, vehicles depreciate that quickly that after several years this may not be a big issue, but the rental company will be covering this loss and the rental fees can therefore be quite significant.
4) Contract hire
In a way this method of purchasing merges buying with a loan and rentals. You get heaps of the advantages from both in a few different ways. You basically come to an agreement with a provider who will make available a car and you pay costs, which include covering the depreciation. You might also want to include the costs of maintenance and servicing in the monthly fees, to help in the budgeting.
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