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If you own a business, you may be considering hiring a vehicle to help with any travel the business requires you to make. Leasing a vehicle for your business may be a good way to grow your business. It may also provide a financially viable solution to get the most appropriate car for your needs without spending too much of your budget on buying a vehicle. This article will explain when and why it may be beneficial for your business to lease a vehicle.

How Do Car Leases Work?

A car lease allows you to pick the car of your choice without purchasing it outright. Instead, a financial provider purchases the car and allows you to use it in return for payments over a period of time.

Typically, car leases last between one to five years. When the lease expires, you will likely be able to continue the lease by exchanging your old car for a new one. Alternatively, you can return it to the financial provider of the lease to be sold. The financial provider will then consider whether the sale value of the car is enough to meet any difference from the original agreement. If it is not, they will ask you to cover the remaining value. If you do this, you can take ownership of the vehicle you leased.

Why Should I Lease a Vehicle?

When you lease a car rather than buy one, you do not need to provide the initial expense that buying a car requires. This means that you will retain more money in the early stages of your business to spend on things that you would not be otherwise able to. Leases also come with fixed payment plans, so you know exactly what you will need to pay over the entire term of the lease. You can choose the most suitable vehicle for your business needs, and you may be able to negotiate what you are willing to pay with the provider. A lease also allows you to easily upgrade your car every few years.

Leasing also means that you can claim the vehicle as a tax deduction when you use the car to help create income for your business. You may need to record when you are using the car for business purposes, as you cannot claim the time you use it for personal use.

This is particularly important if you are a sole trader. If you operate as a company, you can claim the whole amount but you will be liable for the fringe-benefits tax for any personal use of the vehicle.

What Are the Risks of Leasing a Car?

If you lease a car, you must pay a fixed fee for the entirety of the lease. This means that although the vehicle will depreciate, you will still pay according to the original value of the car. It will also be more expensive to insure as it is at its most valuable point when you lease it initially.

You should also remember that you are engaging in a contract with the financial provider. This means that if you decide you want to finish the lease early, you may struggle to break out of the terms of the lease and your agreement with the financial provider.

It can also be difficult to pick a financial provider that will provide you with a fair rate. Car dealers often have higher upfront fees and ongoing interest rates. They may also try to include add-ons you do not want, such as payment protection insurance. Shopping around for the financial provider that works best for your business is essential. Often, equipment brokers may be able to help you find a provider with a good deal on a car lease that fits you and your business.

Key Takeaways

Hiring a car or vehicle may be a good way to grow your business and make operations easier. However, you should be careful that you are willing to commit to a lease before you engage in a contract with a financial provider. If you need assistance in determining whether leasing a car or buying a car is best for your business, contact LegalVision’s commercial business lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

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