AAA reveals that the average cost of owning a car in 2022 is $10,728 annually or $894 per month, according to a report on NerdWallet. The benefits of having cars for your business range from low operating costs to legal protection, networking opportunities, and professional client impression. However, buying a fleet of company vehicles outright is expensive, especially if you’re running a small business.
With this in mind, take time to research the current cost of owning a vehicle before making a purchase. Find out the cost of depreciation, fuel, insurance, loan interest, and maintenance fees. Doing so will help ensure your company’s auto budget is in line. You’ll also be in a perfect position to determine the best way to finance your automobile purchase. If you’re in the market for company vehicles, below are the best financing options for buying business cars.
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Car Hire Purchase
This auto financing option allows you to hire a company car for fixed monthly payments within a specified timeframe. Also known as term purchase, commercial hire purchase works differently compared to conventional auto loans. When you opt for hire purchase, the financier or lender buys a vehicle on your behalf, and then agrees to hire the car to your company until the loan payment is complete. Hire purchase is ideal for companies that don’t want to commit to a long-term car loan. However, lenders require you to pay a down payment of up to 10% of the car’s marked price, and it’s only after you have paid the loan in full will you own the car.
Commercial hire purchase provides many perks to businesses of all sizes. For instance, you can claim interest rate and depreciation charges on tax. Another advantage of commercial vehicle hire purchase is payment fees are fixed and the terms are flexible, so you know what you’ll be paying every month. Like other loans, hire purchase has disadvantages. For example, a lender could charge a fee if you end the hire purchase agreement before the agreed date. Hire purchase is expensive and you can’t claim ownership of the vehicle until you’ve completed your loan repayments. Not to mention you still have to pay for repairs and maintenance for a car you don’t own.
Business Auto Loans
A business or commercial auto loan is an equipment financing option that gives businesses access to affordable capital so they can buy cars or trucks. Note that the purchased company car becomes collateral or security for the auto loan, so you don’t need to worry about losing personal assets if you default loan payments. Businesses can also choose different commercial car loan types based on their preferences. For example, if you’re planning to buy a new car, consider applying for a new commercial car loan.
For those looking to purchase second-hand vehicles, an old commercial auto loan is an excellent option. You can also opt for commercial vehicle refinancing for an existing vehicle loan. The benefits of choosing commercial auto loans include quick approval times, tax deductions, competitive interest rates, easy repayments, and it frees up cash so you can invest in other areas of the business. Not to mention, commercial auto loans are available for business owners with bad credit.
As a small business owner, you may have concerns about your poor credit score or zero credit history. Typically, getting a loan when you have bad credit can be impossible. But with many lenders providing auto financing for good and bad credit, you can easily get funds to purchase company cars at affordable interest rates and flexible repayment terms. Car.Loan and Auto Credit Express are perfect examples of lenders that offer auto loans to borrowers with bad credit. Such lenders also set fewer restrictions on the type of vehicle you can finance, meaning you can finance a brand new vehicle or an old one.
If buying a company car outright with cash payment or accessing other financing options doesn’t work for you, consider leasing. Car leasing is like hire purchase, as it involves a lender or financier buying a car and then lending it to you for sometime. It’s worth noting vehicle lease contracts last for two to five years and the down payment fee is equivalent to at least three times the monthly payment.
There are two options to consider when your lease agreement ends. One, you can purchase the vehicle and own it by paying the remaining balance in one installment or balloon payment. Alternatively, you can sign a new lease and start again. The beauty of leasing a company car is you don’t have to stick with aging automobiles that no longer serve your business’s transportation needs. You can change cars often and don’t have to worry about servicing, repairs, warranty, or road tax, as they are included in the lease contract.
Owning a business vehicle guarantees many benefits, such as convenient transportation, reduced operational costs, tax deductions, and maintaining a professional impression. However, buying a fleet of company vehicles outright is costly and could affect your cash flow. For this reason, business experts suggest choosing auto loans that fit your company’s auto budget. Some of the best auto finance options worth considering include vehicle lease, commercial auto loan, or commercial hire purchase.