Should I Lease Vehicles or Take Out Auto Loans for My Business in Canada?
At first glance, leasing seems the obvious choice for business owners, especially in Atlantic Canada. A new vehicle every three to five years with an equally new warranty, and lower monthly payments seems like a great deal, right? And it is, for buyers reluctant to spend time on selling or trading-in their used cars, or worrying about rising maintenance and repair costs.
On the other hand, vehicle financing through Laneway Auto is a better option for buyers in New Brunswick who want to own their own wheels, becoming a personal asset once that final instalment has been paid. Other advantages include personalizing a car in any way its owner chooses, as well as driving it for as many kilometres as needed. The purchase option is ideal for businesses whose drivers cover longer distances than average, who have the facilities for maintaining vehicles over the longer term, and whose corporate requirements are relatively stable.
Auto Loans vs Car Leasing Costs
In general, leasing costs anywhere between 30% and 60% less than the monthly repayments on even the best auto loans in Halifax. However, that’s only the tip of the expenditures iceberg.
In the long run, leasing costs will always outstrip vehicle financing – assuming that buyers keep their vehicles after paying off their debt– as auto loans in Nova Scotia have no monthly payments over the long term, and charge fewer fees. The smartest economic option here is to drive the vehicle through to the end of its working life, when maintenance and repair costs become higher than replacement prices.
Auto Loans vs Car Leasing Tax Breaks
The Canada Revenue Agency (CRA) has laid down strict guidelines for deducting vehicle expenses incurred for business purposes. For both vehicle financing and leasing, fuel, repairs, maintenance, insurance premiums, and licensing fees may all be claimed against taxes.
- Vehicle Financing: tax deductions depend on how much was paid at the time of purchase, either in full through an auto loan. Apart from depreciation, which is tax-deductible, the amount of interest paid out on auto loans may also be deducted, up to a ceiling amount each month. Because of the Canadian tax structure, auto loans often offer more tax benefits during the first few years, and then taper off.
- Vehicle Leasing: if paid in full, the purchase price is tax-deductible over the useful life of a vehicle, based on a depreciation mechanism that drops by a set percentage each year, with an annual tax deduction ceiling that is generally up to $ 30,000.
Vehicle Financing, Auto Loans and Your Insurance
In practical terms, there is no difference between insurance costs for leased or financed cars. Your premiums are based on driving history, location, vehicle type, and ownership duration. However, the leasing company is always listed on insurance policies as the owner, ensuring that their investments are protected. So if your leased car is involved in an accident, the compensation will be paid out to the leasing company.
Cars purchased through auto loans in Nova Scotia and elsewhere in Atlantic Canada are covered by the insurance policies stipulated by the lenders, also covering their investments. However, if your vehicle is used for business purposes, you must advise the insurance company, which may charge higher premiums. If you fail to do so, your insurer may refuse to cover your costs when submitting a claim.
No matter whether you opt for vehicle financing or leasing, Laneway Auto can design an auto financing plan that helps you stay up-to-date with your payments, while building up your credit score. And that means lower costs for newer cars – which is a sweet deal for any business.