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Should You Be Buying or Leasing a Business Vehicle?

You realise you need a business vehicle but you’re not too knowledgeable on what financing options would be best for your business. One person advised you to buy the vehicle and another to lease it. You’re now sitting there wondering, should you buy or lease the vehicle?  Help!

The great thing about vehicle financing options is one size does not fit all. The option you will choose is highly dependent on your long term goals.

Let’s consider a small business owner named Mike. Mike decided to lease his business vehicle because he didn’t want to pay capital upfront. He prefers getting a new vehicle for his business every two years to portray excellence as per his brand strategy.

He entered into a lease agreement that allowed him to enjoy the use of the vehicle without immediate ownership and a tax deduction on the lease payments.

Without getting too technical, let’s say Mike paid R5000 per month in the first year and R3000 per month in the second year. He would be paying a total of R96,000 over the two-year period instead of paying a capital amount of say R20,000 upfront and then monthly payments depending on the agreement.

This type of financing option suits Mike because his long-term goal is to replace his vehicles on a regular basis. When the lease expires, Mike doesn’t have to worry about trading or selling the vehicle. In addition, he doesn’t have to think about outstanding amounts at the end of the lease. He simply walks away from the agreement once the lease expires.

If you’re not like Mike and you see a vehicle as a long-term investment, traditional financing options would best suit you. These options allow you to pay off the vehicle over a specific period until you take ownership of it. The interest rate you will pay on the vehicle is dependent on the agreement with the bank.

This type of finance also comes with its benefits. One such benefit is you can get a tax deduction on the purchase price at a fixed rate every year.

In the end, buying and leasing come with its own positives, it is up to you to identify your long-term goals and choose the best finance option for you. Of course, here at Citton Commercial we have expert Advisors to help you through the process. Just give us a ring and we will assign a dedicated Advisor to you. Welcome to the bright side of car buying!

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