If it is time for you to renew or replace a car in your company’s fleet, then what options are open to you? Must you only pay up front for it, or are there other, better, methods to replacing vehicles? 1) Buy the car with money If you might afford to pay for the whole price of the brand new vehicle in one go, then this might seem to be the option for you. Straight from the start the car is yours in its entirety, along with all future bills. The downside of owning the vehicle, which you might sell if you need to raise money, is that even though you might pay all of the cash in one go, you may have to write off the costs of the new vehicle more than a few years. This could be a huge tax disadvantage and might price you dearly over time. 2) But the vehicle with a loan Very similar to buying the new car outright, here you own the whole car from the start. And because you are paying for the purchase via a loan in excess of a few years, the repayments could be closer to matching written off value of the vehicle. So the tax problems may not be so noticeable. But the problem is the loan. Within no time at all from taking the car away from the showroom the value of the car has dropped and might even exceed the value of the loan, because car loans might have lots of interest charges. Plus, should you sell, or lose, the car you still have to pay all of the installments and there are no benefits for early repayment. 3) Rent the car Renting a new vehicle for your company is another option. Here the tax writing off is not an issue as you declare the price of the rental fees in the accounts. Plus, should the car suffer any breakdowns, it is then up to the rental firm to replace the car, get it serviced and back on the road. The rental payment will also cover insurance, taxes and wear and tear of the tyres, brakes and so on. However, there is a big problem. After a year or two of payments, you have nothing to show for it. The payments do not give you an asset at the end of it. Having said that, vehicles depreciate that quickly that after some years this may not be a big issue, but the rental company will be covering this loss and the rental fees could therefore be quite significant. 4) Contract hire In a way this method of purchasing merges buying with a loan and rentals. You get ample of the advantages from both in some different ways. You basically come to an agreement with a provider who will make available a car and you pay costs, which include covering the depreciation. You might also want to include the costs of maintenance and servicing in the monthly fees, to help in the budgeting.
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If it is time for you to renew or replace a car in your company’s fleet, then what options are open to you? Must you merely pay up front for it, or are there other, better, methods to replacing vehicles?
By Keith Lunt. If you want to arrange you contract hire leasing, go to 1st4contracthire.co.uk
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