Should I Buy or Lease?
Should you buy or should you lease? It really depends on you. There are pros and cons to leasing and buying.
Below is a summary on the advantages and disadvantages of leasing and buying:
Advantages of Leasing
Better cash flow
Leasing does not require a high initial capital. This means more capital upfront to invest in the business
Fixed and accurate cost budgeting
The cost of leasing a vehicle is fixed. Usually, a leasing company would cover the cost of insurance, replacement vehicle, certificate of entitlement (COE), road tax, repair, servicing and maintenance cost.
Leasing is considered as expense in accounts. It is tax-deductible
Ease of administrative work
As the insurance, road tax, certificate of entitlement (COE), repair, servicing and maintenance cost is covered, the company does not need to source and handle all these issues. This means that the company would be able to reduce manpower duties.
More stability and assurance
Company may have issues finding a replacement car in the event when the vehicle breaks down, as many leasing or rental companies do not offer daily rental. This would affect the business operations severely. However, if it is a leasing vehicle, usually the leasing company will provide a replacement.
Adding or reducing the fleet is straightforward as customer do not need to go through the buying and selling process.
Usually, the leasing company would take care of all the related services from servicing and maintenance to repair, towing, and replacement.
Disadvantages of Leasing
Leasing is generally more expensive than buying.
Debt to the company
Instead of buying an asset, leasing is an expense to the company. his would affect the company valuation and ability to access other loans.
The customer would not be able to sell off the vehicle to reduce expenses as it is bounded by the lease agreement.
Advantages of Buying
As the owner of the asset, the customer have the freedom to sell off the vehicle, make modifications and do anything he/she wants with the vehicle. In times of need, the customer would be able to sell off the asset to raise cash flow.
Lower cost as compared to leasing
The total cost of buying a vehicle would be lower than leasing as a whole.
Disadvantages of Buying
High initial capital
Buying a vehicle requires a high initial payment even if taking up a loan. This means lesser working capital and investment for the business.
More administrative work
The company would need to take care of the insurance, road tax, certificate of entitlement (COE), repair, servicing, maintenance, and other responsibilities involved with vehicle ownership.
Maintenance, servicing, replacement, repair and other services are usually from different individual providers.