More and more are leasing a car for business or personal purposes over the past years to afford a preferred car at a lower cost.
As opposed to purchasing a car outright or through a bank loan, you don’t need to put down a deposit when you lease. Thus, freeing up extra cash for other expenses.
Aside from access to a reliable car, leasing offers another huge advantage — a financially viable solution that suits your needs, minus the hassle of ownership — providing great benefits for both the employer and employee.
There’ll be an opportunity to make changes to the lease once it’s up — say, extending the term.
If you’re thinking of leasing a car, here are some factors to consider.
For the first few months, keep a log book for the car in keeping track of personal usage. It’s to make sure the vehicle is being used predominantly for business purposes. There’s no need to keep a log book if personal use is incidental — given that the car is a tool of trade or work ute with a carrying capacity of over 1 tonne.
The value of the asset and the liability for future lease repayments are raised to the balance sheet when leasing a car through the business.
This creates a secured liability on the balance sheet for the business — without an impact to the employee and is restricted to pure tool of trade vehicles.
Employers could use an operating lease to remove this from the balance sheet — which then becomes a rental over the term of the lease.
The car you choose under a business lease is essential — suitable for both your business and personal needs and as a reliable asset.
Ask your fleet manager to assist in the process. They can manage the vehicle’s specs and recommend makes and models that suit your needs and the environment. This will also ensure to meet engineering compliance.
Look for the little details, like comfortable seating position and other things that might not seem right. drive the car like you would on a daily basis, and follow these other tips to get the most out of your test drive.[Tweet “7 Things You Should Know About Leasing A Car”]
Every business car lease has an annual miles limit that the user is allowed to travel and agreed upon — usually about 10,000 miles (16,000+ kilometres). Any excess mileage used is charged at a rate.
You can also pay extra for additional mileage if it couldn’t be helped. It’s better to average out to your selected miles per year to avoid any issues.
When it’s a desired make and model required for business, cars are expensive. Maintenance and service costs can quickly add up.
To reduce the costs of running the car and to extend its lifespan, utilise your fleet manager. He will schedule required servicing and maintenance and stay on top of everything.
Tracking the car also helps in maximising the usage and making the most of this capital asset. Now, this is an additional cost but will prove to be beneficial in the long run — ensuring the car is being used as intended.
Consider residual value of the car at the end of life and relates it to resale values. Match the resale value to any debt owing at the end of the lease term.
The residual value, a.k.a. the balloon payment, is the amount a business expects to sell an asset at the end of its useful life. The value outlines the function of the amount and rate of depreciation on the car and can be affected by monthly payments.
Usually, the higher the residual value, the more the car is worth.
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Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.