Car sales in recent years have been buoyant again, is purchasing one, really your best option? For sure, purchasing a new car contributes to the UK wider economy, but when you consider your personal finances, it may not be the best option for you as a contractor. With public transport cost spiralling that’s not probably the best option either.
For many contractors and self-employed professionals, car leasing has proven to be an affordable way to drive a new vehicle every 2 or 3 years, avoiding MOTs and unforeseen bills.
So, what are the main benefits of vehicle leasing:
Unless you’re buying a Classic or Vintage car which holds its value, the minute you drive your newly purchased vehicle from the showroom, it’s already losing value. Likewise, taking out a loan for a car finance agreement to purchase a vehicle is even worse. All you’re doing is making payments each month for something that is depreciating in value. Whereas with leasing, all you’re paying for is the use of the car.
Car leasing deals are essentially long-term “car rental agreements” that offer low monthly repayments.
You only have to do the calculations to see that the monthly repayments work out to be a lot less than if you opted to finance or pay upfront. This means you have more money in your pocket to spend or save.
Avoid large deposits and high initial outlay cost. All you need is a low deposit equalling 3-6 months repayments. Long gone are the days of having to save a large deposit!
Your monthly payments remain fixed for the duration of car leasing agreement for your vehicle. Unlike car finance which can fluctuate with interest rates.
Gone are the days you have to remember renewing your road tax. Luckily, the car leasing agreement also covers the road tax for your car or van – typically for the duration of your contract.
It’s always exciting getting a new car! But as soon as you have to sell it, it becomes a nightmare. You no longer have the agony of dealing with tooth-wrenching traders or dealers who will typically offer you a low payment or part exchange. The advantage of a car lease, is that you can hand back the car to the leasing company after 2-3 years when the contract agreement comes to an end.
As a Contractor your time is valuable. The last thing you want is to be chasing around for quotes when your car has a problem. Your leasing contract will include the manufacturer’s warranty, giving you peace of mind should something go faulty with the car.
The biggest plus of leasing a car is that you can now afford to choose a car that could have been well out of your price range normally, if you had to get finance to buy it. Furthermore, you can get a brand new car every 2-4 years which effectively means that you will benefit from any new technology, performance developments and fuel economy enhancements on any new model.
One of the greatest tax advantages of leasing a car through your business is that it’s not shown as an asset on your company balance sheet. This is due to the car being owned by the leasing company. This means that you’ll probably be able to deduct all of the rental charge from your company’s taxable profits. Which can make car leasing very tax efficient.
You should always keep track of all the miles you spend in your car, separating business from personal. We also recommend that you seek guidance from your own accountant, as every business owner’s circumstances are different to ensure your making the right choice.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.