Buying vs leasing

04 September

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The pros and cons

Across the UK, van and car dealers are bracing themselves for the traditional September sales surge. Just like many private buyers, fleet managers can be attracted by the arrival of the new number plates that tell everyone just how new their vehicle is.

But simply buying your new truck, van or car is only part of the decision to be made, however, as buyers are now faced with a complex array of alternative purchasing schemes. There can involve maintenance contracts, leasing arrangements and mileage predictions. To help you through this purchasing puzzle, here’s our simple guide to the different buying schemes available:

Buying with cash

Pros

This is the cheapest, simplest method, with no interest or admin fees. You can strike better deals with cash. You own the vehicle outright and can do what you want with it, including selling it when you want.

Cons

Outright purchase takes a hefty chunk from any business’s cashflow. The vehicle becomes a depreciating capital asset in your accounts and could become a rusty, unreliable problem that is your responsibility to sort out.

Getting a loan

Pros

You can spread the cost over time. It works best if you shop for the best interest rates then approach dealer for ‘cash’ discount. You own the car.

Cons

Avoid old-fashioned HP deals where payment default results in vehicle re-possession. It’s unlikely the dealer will offer the best finance rates available. The vehicle will depreciate while you are still paying off the full purchase price.

Contract hire/leasing

Pros

Convenient, because servicing, breakdown cover and vehicle tax is usually included and you can change vehicles easily, without buying and selling. All costs are predictable and there’s no risk. A portion of the VAT can be reclaimed. Low payments and competitive deals are often available. You can use it as a system to get a new vehicle every year or two.

Cons

You pay for all these benefits and the cost covers the predicted depreciation. There will be penalties if you exceed an agreed pre-arranged mileage. A large deposit is required at the start but you never own the vehicle. It usually returns to the leaser at the end of the contract. (Contract purchase schemes include an option to buy with a lump sum at the end of the scheme, lease contracts don’t). During the scheme the vehicle is not classed as a company asset.

Considering the pros and cons for each buying scheme when you’re in the market for a new truck, van or car can ensure that you make the right decision on whether to buy or lease.

For a more detailed look at the accounting implications of each method, look at the advice here.

Worried about the implications of each of the purchasing methods? You’ll find more detailed expert advice here.

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