As your business expands and the day to day duties increase, you may find yourself in a position where you need to add some commercial vehicles to your fleet. Even if you have previously purchased cars for your firm, it can still be a challenging experience to navigate the world of financing company cars.
There are a variety of options on the market, which only makes the experience more frustrating. How do you know which car is suitable? Which purchasing strategy is the right one to take? Is taking out a loan a benefit for your company? What about leasing? Or outright buying?
To help you with these decisions, read on for the ultimate guide to paying for your company cars.
Choosing between buying, financing and leasing is always a difficult choice for potential car buyers. Here are some of the pros and cons of each option:
Opting to buy your company cars outright is a considerable investment and can, therefore, limit your ability to grow in other areas of your business. Buying a car requires higher costs, but also then means that your company actually owns something.
Usually offering the lowest of monthly payments, taking out a lease often means getting into a never-ending cycle of paying for a vehicle. When you lease a car, you don’t own the car; instead, you use it until the lease ends and you have to return it. While you will never have any equity in the car, the positive side is that its future value doesn’t affect you financially.
However, keep in mind that leases limit how many miles you can put on the car, generally around 12,000 per year, although you can adjust to a higher mileage limit should you need to. If you do exceed the limit, you will have to pay for each additional mile.
For most business owners, financing their company cars is the best option as it means you merely are responsible for a manageable monthly fee and a less significant expenditure to get your car out and about.
If you do decide to finance your new company cars, then you are going to have to look for a car loan. As with everything in life, there are a few different options available, but here are three popular ones:
– Chattel Mortgage
One of the best options for car loans, the chattel mortgage offers businesses the opportunity to procure ownership of the car from the beginning.
How does it work? Well, you receive the necessary funds to purchase the vehicle while the financier procures a mortgage on the car as security over your loan. From this point onwards, you are considered the owner of the vehicle. Just as with a mortgaged house, you won’t hold the title of the car until you make the final payment.
Many business owners like this option because it is a fantastic way to save on your tax bills. And, who doesn’t want a cheaper company car?
– Commercial Hire Purchase Agreement
Different from the chattel mortgage, going for a commercial hire purchase agreement means that your financier will purchase the vehicle in question and then you will lease it for the duration of your contract. Regarding servicing, not all commercial hire purchase agreements include it, so make sure to read the terms and conditions carefully.
Typically, you will initially put down a 10% deposit and then, over the course of the loan, period repay the balance in instalments plus interest. You can’t sell the car without your financier’s permission, but you can return it.
When the contract ends, you can either decide to take over ownership of the car or choose to change the vehicle and begin a new commercial hire purchase agreement.
Similar to the chattel mortgage, this kind of financing product can also potentially be used for tax deductions. That being said, be aware that with a commercial hire purchase agreement, your car can be repossessed if you miss a payment.
– Finance Lease
Last but not least, a finance lease combines some of the elements of a Chattel Mortgage and a Commercial Hire Purchase Agreement. Your financier will purchase the car and then lease it to you. This provides you with the advantages of ownership and the possibility to upgrade your wheels every couple of years.
An additional benefit from leasing a car is that the running costs of the vehicle are the responsibility of the financier!
Whether you opt to buy, lease, or finance a company car, you still need to consider liability. This is essential especially if your business requires employees to frequently drive your vehicles as part of the primary activity (e.g., deliveries, sales calls, on-site repair calls).
One of the ways to safeguard your company is by founding an independent company through which you insure your vehicles. As a business owner, you want to remove the liability of driving those cars out of the operating company, into an entity that has no assets other than the vehicles.
By doing this, if one of your employees, unfortunately, gets into an accident, the only assets they can go after are the vehicles and not the entirety of your company.
Everyone loves a good deal, and as a business owner, you are not exempt. Here are three tips for getting the best financing deal when looking to get a company car.
1. Talk to several dealers.
At different times of the year and in the various branches, dealers may be in a position to offer you different buying, leasing or financing plans. Talk around so that you know what the going rates are and to educate yourself on the potential deals you can get.
For example, if you are looking to finance your car, you need to thoroughly understand the APR (annual percentage rate) which is the interest you’re paying over the term of the finance agreement. Research and talk to dealers to see how this APR rate is different, and keep investigating car loan rates.
2. Don’t be scared to negotiate.
The benefit of speaking with a range of dealers and boosting your knowledge of the market is that you are then in an excellent position to speak with authority to the salespersons. When you have the right ideas and jargon, you are more likely to be confident in your view of what a reasonable rate is.
Never be scared to negotiate. This skill, combined with your knowledge, could save you a lot of money over the duration of your payment plan.
3. Don’t rush.
As a business owner, you most likely already know that when it comes to making decisions on these types of matters, it is essential for you to take your time. Never fall for a pushy salesperson and don’t be pressured into signing anything on the spot.
Think everything through, ask for the quotes in writing, and then take the details home with you so that you can have a closer look at all the terms and conditions before you agree to the deal.
While you are examining the terms and conditions, make sure you are thinking long-term. While the offers with the lowest monthly payments may be the one you want to go for, you must weigh the cost throughout the whole period of the finance scheme (you can do this with the APR and the total amount repayable). Because if low monthly payments mean a longer repayment term, then there is a good chance you will be paying interest for longer and the car will end up costing you more.
Have you bought, leased, or financed a company car recently? Are you considering it? What would sway you one way or the other? Let us know your thoughts in the comments below!
Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.