You may be wondering which is more beneficial to buy or lease a car for business purposes. Before you decide, look at the pros and cons of both options. When you buy a car on loan, you have to pay installments of a specific amount for a fixed duration of time, even when it is depreciating. In car leasing, the residual worth, at the end of the lease period can lower the lease cost, if you do not have to pay any penalty. A business car lease is becoming more popular among entrepreneurs, as cars can be switch over frequently. Using new models with innovative and safety features is charming, without paying the extra cost.

Lease cost factors

Some factors must be taken into consideration before you decide to lease a car for your business. You must know the producer's suggested retail price of the car's specific model, which you selected for leasing. The closing negotiated price and the down payment, if applicable, is an essential factor determining the lease cost of the car. The Sales tax rate, prevailing in the area of operation. Tenure of the lease. The lending rate of loans for buying new cars provided by banks. The value of the car at the end of the term (residual value).All these factors must be measured before making the decision.

Open vs. closed lease

When you negotiate with a car dealership for a business car lease, there would be two probable options: open lease and the closed lease. Most people opt for an open-end lease for a commercial car lease. In this type, the lessee (you) take the car's depreciation risk, but the clauses attached to these agreements are more flexible and liberal. In closed-end, the lessor (owner) takes the risk of deprecation, but terms are more stringent. As you are not obliged to buy the car at the end of the lease tenure and do not have to be concerned about the depreciation of the car, the anticipated rate of closed-end leases is preferred. You only have to pay for extra mileage, and any damage occurred during the tenure.

Residual value

Residual value refers to the value of the asset after the lease tenure. This term also denotes the price at which you could buy the car after the lease tenure. A residual value will be provided in the lease agreement when you sign the document. The residual value is also one of the factors which determine the monthly installments. Higher residual value means higher monthly payments.

Lease tenure

If you lease for a short tenure, the payments are more than long term lease agreements. The rate of depreciation is faster in the first 24 months. Formulate a lease tenure that suits your needs and preferences. Long-term leases are economical, as you pay less monthly EMI, but terminating it before the tenure can be expensive. Before you make the final deal, formulate an estimate of the annual mileage for the car to be used. A general lease agreement comes with 12,000 miles limit yearly, but if you think the mileage would be more, it is prudent to pay extra for the additional mileage.