So the question is, which option is right for you? Let’s take an in-depth look at what your choices are in order to help you make an informed decision.
Buying a car with cash
If you are looking to buy a new car, one option that some people and companies opt for is buy it outright with cash. This is a very straightforward process, you simply choose the car you want to buy, hand over the cash (or pay with a debit card) and then you can drive away in it!
With a cash purchase, you (or your business) owns the car and apart from ongoing costs, there is nothing further to pay for the car. You then have the option to sell it if you need the money or want to get a different car, or you can keep it as a long-term purchase.
Businesses can also claim capital allowances on cars, and 50% of the VAT paid for VAT-registered firms (or 100% VAT if the car is to be used solely for business purposes, for example, as a taxi).
The downside of buying a car with cash is the fact that you have to come up with the cash in the first place! And if your business is buying the car, it can adversely impact your cash flow, which could have been used on other areas of the business.
Leasing a car
The other option available to all individuals and businesses is leasing, sometimes referred to as car financing. With this choice, you don’t need to come up with a lump sum of money to get your new car, which is obviously great for cash flow purposes.
Leasing is a very popular way of getting your hands on a new car, and it is often much easier than trying to obtain a loan (regardless of whether you are an individual or a business) because the money lent to you is secured against the car, so if you don’t pay for it, the leasing company has the right to take the car away from you.
There are basically two choices you can make when it comes to leasing – contract hire and contract purchase:
With contract hire you agree on an affordable monthly instalment plan, a fixed duration for the payments, and an annual mileage (if you exceed the annual mileage at the end of the term, you have to pay excess mileage fees – this is because the instalments are calculated on depreciation values). At the end of the term though, you have to hand the car back – there is no option to buy it;
Contract purchase works in exactly the same way as contract hire, except that you have the option to buy the car at the end of the term (or you can hand the car back and get a new one).
Leasing also has other benefits; for example, you can include a maintenance plan in your monthly instalments which takes care of servicing and MOT costs, and even includes breakdown cover.
The main downsides to leasing are that you end up paying more than you would had you bought the car in cash due to the interest charged and any arrangement fees payable, and the car belongs to the leasing company until you pay it off (if you go for contract purchase leasing).
If you are after an awesome deal on leasing, there are many websites online that specialise in car leasing such as www.tilsungroup.com.