Vehicle finance vs. vehicle leasing - which is right for my business?

Vehicle finance and vehicle leasing both provide the opportunity to use a vehicle, while spreading out the cost. Here's how they work. 

If you’re looking to purchase a vehicle, there are a number of different options you can choose from. These options will fall under the umbrella of either ‘vehicle finance’ or ‘vehicle leasing'. The decision on which is right for your business often boils down to various financial, operational, and strategic factors that are unique to your company's needs and goals. 

Understanding the differences between these two options is crucial for making an informed choice. 

Vehicle finance: owning your fleet

Vehicle finance, also known as a car loan, involves borrowing money to purchase vehicles for your business. You make monthly payments over a set period until the loan is paid off, at which point you own the vehicles outright. 

Pros of vehicle finance

  • Once the loan is paid off, the vehicles become company assets that can be used, sold, or traded as needed.
  • Owning the vehicles can potentially lead to long-term cost savings since you're not subject to mileage limits or wear-and-tear restrictions.
  • You have full control over how the vehicles are customised, branded, and maintained.

Cons of vehicle finance

  • Vehicle finance typically requires a larger upfront down payment and higher monthly payments compared to leasing.
  • As the owner, you'll bear the brunt of the vehicles' depreciation in value, which can impact your overall financial outlook.
  • You're responsible for all maintenance and repair costs, which can be unpredictable and potentially costly.

Vehicle leasing: flexibility and convenience

Vehicle leasing involves renting vehicles for a predetermined period, typically 2 to 4 years, during which you make regular lease payments. At the end of the lease term, you can choose to return the vehicles or buy them at a predetermined price. 

Pros of vehicle leasing

  • Leasing typically requires a smaller upfront payment and lower monthly payments, freeing up capital for other business needs.
  • Since lease terms often coincide with the manufacturer's warranty, maintenance and repair costs are usually covered.
  • Leasing allows you to regularly upgrade to newer, more technologically advanced vehicles, keeping your fleet up-to-date.

Cons of vehicle leasing 

  • Leases often come with mileage restrictions, and exceeding these limits can result in additional fees.
  • At the end of the lease, you don't own the vehicles unless you choose to buy them at a predetermined price.
  • Excessive wear and tear on the vehicles can result in extra charges when returning them at the end of the lease.

Choosing what's right for your business

The decision between vehicle finance and vehicle leasing hinges on your business's specific needs, financial situation, and long-term objectives. Consider the following factors when making your choice:

  • Cash flow

Assess your current financial health and cash flow capabilities to determine whether you can handle larger upfront payments and higher monthly costs associated with vehicle finance.

  • Usage

Evaluate the nature of your business operations. If you require flexibility, such as regularly updating your fleet, leasing might be more suitable. If you anticipate using the vehicles for an extended period, ownership through financing might make sense.

  • Future plans

Consider your business's growth trajectory. If you expect to expand significantly, leasing could provide the flexibility to adapt to changing needs.

There is no one-size-fits-all answer to whether vehicle finance or vehicle leasing is best. Each option has its merits and drawbacks. To make the best decision, carefully evaluate your business's financial health, operational requirements, and long-term goals.