To invest in assets or not? What if your business can enjoy the benefits of properties without the hassles of ownership?
You can make the right financial decisions for the company by understanding the subtle difference between car leasing and hire purchase.
Determine whether owning the car affects the business’ productivity, and you have your answer.
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What is the Difference Between Car Leasing and Hire Purchase?
In a word, ownership. Businesses that finance a car through hire purchase mostly do so because they want to own the car eventually but cannot make the total payment upfront.
With a car lease, the business only pays for the car’s depreciation while the contract lasts.
Both concepts are similar in some ways, one of which is how your credit score plays a vital role in getting approval. The company can also choose between used or new cars with any of the two financing methods.
Hire purchase agreements may be older in the automobile world, but leasing appears to dominate. It’s easy to see why. Car leasing is the more flexible option, especially for small businesses with little capital.
Imagine a situation where getting a luxury car is necessary to aid the business operations of a small company. Looking out for Touareg lease deals will be more convenient than sacrificing a huge percentage of your capital as an initial deposit for the car.
Why Leasing is a Better Financing Method for Your Business
Businesses have the option of choosing between finance lease transfers and operating leases. These choices provide an opportunity to decide which suits your particular model better. Here are other advantages worth considering.
1. There is room for affordable upgrades
You can enjoy frequent upgrades with a lease agreement if you stick to short-term leases. Technological advancements occur with cars; your business car can catch up with these improvements.
This is an opportunity to boost branding as customers like to identify with luxury brands.
Unlike a car hire purchase that ties you to a particular car while the contract lasts, you can upgrade your business vehicle when a lease is over.
2. Freedom from maintenance costs
As explained, you have the option to lease a business car and not be responsible for its maintenance. It’s the perfect agreement for companies focusing on productive business activities rather than vehicle maintenance.
Since the car in the lease arrangement is not yours, servicing the car or carrying out other routine maintenance is the duty of the lease company.
What does this mean for your business? Fewer expenses and more focus on using the revenue saved for development.
3. Lower Penalty for Late Repayments
While you should avoid missed payments on any kind of loan, the penalty for defaulting on some agreements in the lease carries a different weight than the hire purchase.
Late repayments of a hire purchase can cost your business the vehicle it has struggled to possess. Depending on the terms, the lender may have to take back the vehicle to meet up with their profit. Losing the car will severely affect the smooth running of the business.
4. Requires Less Money
Since the business does not end up owning the vehicle, lease agreements are more affordable.
The lender will not demand a huge sum as an initial deposit or expect you to pay high amounts monthly. You simply pay for the car’s depreciation value throughout the contract period.
Leasing requires a lower monthly payment that will be easier to commit to. If you intend to make repayments using the profits from the business, it is smart to go for an agreement that allows you to make affordable repayments.
5. Fits Into the Business Plan
Whether you need the car for a growing business or are already established, lease agreements can easily fit into the business plan.
If your business plan is temporary and you are unsure how long you may need the car, leasing is a safer option. You can opt for a short-term lease, fit it into the existing plan, and take a new lease after the old one expires.
Final Verdict
Regardless of the vehicle requirements, companies benefit more from lease agreements. Having a vehicle to boost business operations no doubt drives profit. Leasing allows your business to enjoy this advantage without owning a car. This makes it the best car finance option for growing businesses.
