Whether it's to help with deliveries or simply provide reliable transportation between work locations, there are good reasons to invest in a company-owned vehicle. However, just like any major purchase, there are several things to consider before handing over the check. Here are a few tips to help aid you in the process of buying a business car.
Reasons to Buy a Business Car
Beyond providing transportation for your workers or services, there are other advantages to buying a business car. Two of the top reasons companies purchase a work vehicle include:
- Tax Advantages: There are numerous ways to claim tax benefits on your company vehicle, such as deductions relating to mileage, car insurance, and other expenses.
- No Effect on Personal Insurance: A business car won’t affect your personal auto insurance, and any accidents that occur relating to business use will only impact the business’s policy.
For these reasons, business owners and employees consider a company car an employment benefit and a way to draw in or retain talent.
Should You Buy or Lease Your Business Car?
Purchasing a car likely requires a loan, which you’ll have to pay back even if your car’s value sinks below the residual loan amount. That means a car accident can leave you with an extra expense. However, if you lease, the vehicle’s wear and tear may lower the cost of the lease. Also, upfront costs for both options vary. You’ll need an initial down payment if you’re purchasing, but you'll only need the first month’s payment and a security deposit if you’re leasing. While both options allow you to deduct mileage expenses from your taxes, qualifying for a depreciation tax deduction requires you to own the vehicle.
What to Consider When Buying a Business Car
First, determine how your car will be used. Will it be used to travel to sales meetings across state lines or to deliver pizzas locally? This helps you understand the type of commercial auto insurance you’ll need and whether additional liability coverage is required. Other car-hunting considerations include:
- Business Promotion: If you intend to dress and paint your vehicle to promote your business, make sure the car is in good condition.
- Tech Features: Consider features such as telematics for better fleet management, GPS, automatic emergency braking, or cell phone blocking technology to prevent distracted driving.
- Fuel Economy: Whether for cross-country trips or strictly local use, business vehicles can take on a lot of miles. Ensure your vehicle has high fuel efficiency.
While taking these factors into account, you should also perform a cost-benefit analysis. Look beyond the purchase price and carefully consider whether borrowing money to pay for the car is worth the interest on the loan.
Register and Insure Your Company Car
Vehicle registration varies by state, and the requirements are based on the vehicle’s weight. While the dealer will likely take care of the registration for you, it’s recommended that you read up on your state’s registration requirements. The car needs to be registered within a month of purchase, and it requires proof of auto insurance. You should invest in commercial vehicle insurance, but as different policies provide different levels of protection, you’ll want to call your insurance agent to make sure you have appropriate coverage.
If it's your first time doing so, buying a business car can seem like a complicated process, but doing a bit of research before signing on the dotted line can save your company from a costly mistake. It’s also crucial that you have the right amount of coverage for your vehicle to protect you from property damage and medical costs should an accident occur. A World Insurance agent can match you with the right commercial auto insurance to ensure your business remains safe.
This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.