Choose the Wisest Auto Investment

Vehicles: Does it Benefit Your Business to Buy or Lease?

Making the decision to buy or lease a commercial vehicle can be difficult for a small business owner like yourself. There are many factors to consider when determining which one will benefit your business without racking up a too hefty of a bill. 

Pros and Cons of Buying a Commercial Vehicle

Purchasing a commercial vehicle gives you and your business flexibility in choosing the make and model, features and the ability to make your own adjustments. 

Once the vehicle is paid off, you can eliminate monthly payments as a business expense, or trade it in to receive money off of a newer model. But as the vehicle ages, you will be responsible for repairs and maintenance. As a vehicle gets older, gas consumption and safety may become liabilities as newer, more efficient models come to market. 

Like any purchase, the value of your commercial vehicle will decrease over time, especially if no down payment was made. You may find yourself owing more on the vehicle than it is actually worth. This can be avoided by investing in gap insurance, or a waiver of depreciation. A waiver of depreciation can be purchased for newer models of cars that promise you the total value of the car new in case of a write off, which protects your business’ finances. Gap coverage will often pay for the difference between what you owe on the car and what the insurance is willing to pay. 

Pros and Cons of Leasing A Commercial Vehicle

Leasing a vehicle means you aren’t tied down to the vehicle you initially chose. A lease allows businesses to update to a newer make and model every few years, and is ideal for contractors who may not have a permanent, or long-term need for it. Because your business may go through busier seasons, leasing a vehicle may make more financial sense for your expenses.

However, leasing a vehicle offers you no equity in the long run. You won’t be able to resell the vehicle or trade it in for your own monetary gain. Lease agreements can also be strict when it comes to length, payments and mileage. Leasing companies can ultimately decide what they and how much they cover for repairs, which may result in additional business expenses.

The impact on your insurance coverage can differ when it comes to leasing your commercial vehicle. Your leaseholder may require you or your business to purchase both collision and comprehensive coverage. Collision helps pay for repairs to your vehicle, regardless of fault in an accident. Comprehensive coverage, on the other hand, helps pay for costs associated with damages from anything other than collisions, such as theft and vandalism. 

Just as there are coverages required by your leaseholder, there are also coverages required by law for leased vehicles. These may include liability coverage, and uninsured and underinsured motorist coverage. These coverages are required on a state-by-state basis, as each has its own minimum amount of coverage required. 

Some insurance coverages may be included within your lease, like gap coverage, for example. It’s important to ask your leaseholder specifically what is covered or included, and what policies you still need to invest in. 

Many leasing companies will cover the cost of maintenance for normal wear and tear, or if something breaks. But, there are plenty that do not cover these incidences, especially if there is damage as a result of a collision you caused. When it comes to purchasing replacement parts, many leaseholders require you to purchase Original Equipment Manufacturer (OEM) parts, which can become costly. Luckily, many insurance policies have the option to include a coverage that will pay for the difference between the cost of OEM parts and generic parts. 

When selecting commercial vehicles for your business, consider the pros and cons of each, and choose a solution that works best for your anticipated cashflow, business expenses and long-term use of the vehicles. Also, consult with a Westfield independent insurance agent regarding the coverages associated with different vehicles, makes and models, as those can change depending on the vehicle’s age, safety rating and more. Learn more about commercial auto Insurance.



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