Should You Lease or Buy Business Vehicles?

Wondering whether to lease or buy business vehicles? Then buckle-up and get ready for an information-packed road trip through the world of business car leasing and purchasing. We’ll answer the top questions regarding car leasing and car buying for a business, including:

What is business car leasing?

How do business car leases work?

Here, you’ll find everything you need in order to make the right choice regarding leasing vs buying a business vehicle.

What is business car leasing?

Business car leasing is a form of financial agreement between a business and a finance company whereby the business owner is able to essentially rent a vehicle for an extended period of time (usually a number of years, but can be shorter). Whether your business absolutely needs a vehicle in order to operate, or if it will just make your everyday business management easier, car leasing for businesses can be the perfect solution to your business’s financial needs.

Important: If you own a trucking business, it’s worth noting that there are trucking loans that you may qualify for, which can be structured differently from business vehicle loans.

 

Of course, the type of business will affect the kind of industry loans a business needs, as well as the specific circumstances that business finds itself in.

How do business car leases work?

There are several points regarding car leasing for businesses that should be considered before putting the pedal to the metal. To begin with, business car leasing requires that the lessee be able to prove that the vehicle is used for business-related travel at least 50% of the time. Additionally, while monthly payments tend to be lower for leases, there are fees for exceeding the limit on how many miles you’ll be permitted to travel per year with a leased vehicle.

When the lease term is complete, the lessee may either purchase the car or return it. That flexibility is one of the main points that make leasing such an attractive prospect for small business owners. But on the flip-side, by leasing a vehicle you won’t be entitled to some of the tax deductions that you would be if you purchase it instead. That doesn’t seem to be stopping people from purchasing vehicles at the end of their lease – the 2019 Midyear Report by Edmunds found that lease penetration is at record levels of more than 32%. In plain language, one-in-three lessees is buying the car when their lease term is complete – that’s big!

Note: Be sure to learn the differences between business vehicle loans and business equipment financing. Although they’re similar in some ways, in certain instances you’ll find that one or the other may be preferable.

Lease vs buy a business vehicle: Pros & Cons

Upfront costs

Oftentimes there won’t be any down-payment required when car leasing for business. In comparison, purchasing a business vehicle will require a down-payment for the most part. If everything else about purchasing a vehicle appears more attractive to you than business car leasing besides the down-payment, then consider taking a business vehicle loan which can help cover those initial costs.

Tax deductions

Tax benefits of leasing a car for business is one of the main focuses when people consider the topic of ‘lease vs buy a business vehicle’. Whether you decide to purchase or lease a business vehicle, there are tax deductions that you may be eligible for – though they will differ. In either case, you’ll only be entitled to calculate deductions on the loan one of two ways:

1. By actual expenses, meaning the percentage of time that the vehicle is used for business purposes.

2. By the standard mileage deduction, which calculates the amount deducted on a per-mile-driven basis.

Additionally, the tax benefits of leasing a car for business only pertain to the interest on the car loan. In comparison, purchasing a business vehicle allows you to claim deductions on a large portion of the total cost. The depreciation value of a purchased vehicle is also deductible, but the same is not true for leased business vehicles.

**Often times you can also deduct the costs for parking, gas, and tolls related to business activities for both leased and purchased business vehicles.

There are limits to how much you’ll be able to deduct. For instance, the IRS designed certain rules that limit the size of the deduction a taxpayer can claim on a leased vehicle to the deduction that they would have been able to claim had they purchased the business vehicle. That regulation is enforced in order to prevent people from dodging the depreciation limits that apply to purchased luxury cars (passenger vehicles valued at over $15,800 or trucks/vans valued at over $16,800)

Restrictions

Since leasing is really a form of long-term borrowing, the company that owns the vehicle will impose certain rules on how you’ll be allowed to use it. For instance, there will be a limit as to how many miles you’ll be permitted to drive over the span of the lease. If you were to exceed that limit, you would face fees that can be pretty hefty.

Also, since you will have been the one to sign the lease agreement, only you would be permitted to drive that vehicle. While that doesn’t sound so bad, it may complicate business matters if and when you’re not around to operate the vehicle.

In contrast, purchasing a vehicle means it’s yours to do with what you like. That’s definitely an important factor to consider when thinking about whether to lease or buy a business vehicle.

How to finance business vehicles: Leasing or Purchasing

Business owners can finance their business vehicle lease or purchase with commercial vehicle loans. Applying for business vehicle financing through banks will most likely result in rejection, statistically speaking – according to OnDeck more than 80% of small business loan applications are denied funding by their banks.

Fortunately, Become has developed innovative solutions using financial technology to defy business loan approval odds and make the business funding process easier and more likely to result in approval. Beyond those advancements in business financing, the application process through Become is quick to complete and intuitive to use. Wondering how to get a business car lease? Here you go!

Step-by-step guide to applying for business vehicle loans:

1. Choose your desired loan amount and select ‘Get Loan Offer’
2. Fill in the requested information (including time in the industry, revenue, business, etc.)
3. Submit your business’s checking account information for analysis
4. Wait for offers. You can also review your status by clicking ‘Access Your Loan Application’
5. Review offers and select your preferred lender and terms
6. Receive the funds to your business checking account
7. Review your tailored LendingScore™ dashboard to improve your funding options
8. Improve your rates – if your LendingScore™ is insufficient, follow the personalized plan (8-12 weeks to unlock funding)

See if I qualify

Fulfill your need for speed

With the insights provided throughout this article, you’ll be hitting every green light on your way towards obtaining business vehicle financing. You now know how to get a business car lease and judge for yourself which is better in the push-and-pull of the ‘lease vs buy a business vehicle’ debate.

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