What’s the best way to buy a new car?

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Arthur DaleyWe are regularly asked by business owners how they should buy a new car or van, which is a sensible thing to do. As accountants, we can calculate the tax savings and costs of the various options, but at Morrell Middleton we also look at the general commerciality of the purchase, and what suits you and your business.

Cash purchase

If you have “spare” funds, then you’d expect to get the best price for cash. The vehicle is yours to do with what you want, which gives you the ultimate flexibility. However, a few areas to consider can include:

– Your money is tied up in an asset. Could you use the money elsewhere to either improve your business or your lifestyle?

– Will you have the spare funds to pay for “lumpy” costs, as the vehicle needs maintaining. An unexpected repair will need funding, in order to keep it roadworthy.

– Have you bought an “ugly duckling” or a “beautiful swan”? If your make and model suffers heavy depreciation, you may not be able to afford to replace the vehicle as soon as you would like.

Hire purchase/borrowing

You may prefer to spread the cost of ownership over a period of time. With a deposit upfront you can aide your shorter term cash flow with a lower outflow of money – often only paying the “extra” in the final months of the agreement. With an agreed monthly repayment you have clarity, but can still be left with repair and maintenance fees. However, a few areas to consider are:

– Are you getting a good deal? The dealer may not be offering the best terms.

– How long do you plan on keeping the vehicle? Does this match with the repayment period, and what are the early repayment costs?

Finance lease

You may like to know accurately a monthly cost for your vehicle, and also like the idea of ownership. A finance lease can offer a fixed cost for maintenance and most running costs (not fuel!), meaning you can budget. At the end of the lease period you have a possible options of carrying on the lease (typically at a lower monthly cost) or making a balloon payment to buy the vehicle. A few areas to consider include:

– Can you commit to an annual mileage usage? Is your lifestyle and business stable, or could your demand on the vehicle increase and leave you with excess mileage costs?

– Would you like to own an older vehicle at the end of the lease, or do you need to be budgeting for a deposit to replace at the end of the lease period?

Contract hire

There is a growing market in paying a monthly fee for a vehicle, which can include maintenance packages, meaning your only other cost could be fuel. After the end of your lease term, you can keep getting a new car, which can be great if you are the type of person who likes to change car regularly, or who likes to drive a new(er) car. As you aren’t on finance, the payment is not subject to a change in the interest rate. However, you may want to consider:

– You are in a fixed term contract. If the vehicle is not needed you may be left with a considerable cost, either being forced to make the remaining payments or a termination fee.

– The car is not yours – you are not the owner.

– Contracts set out a mileage allowance per annum/for the contract. If you exceed these, you will be subject to excess mileage costs. Is your mileage predictable, or could you be left paying an extra payment at the end of the lease, or paying for miles which you don’t use.

In conjunction with the above, we can work with you to understand the overall cost of a vehicle to you and your business  including ensuring you are clear on the cash flow so you can budget accurately . Please contact us if you’d like to discuss further on 01904 691141.