A car is often the biggest single investment a new business makes. But is it the best use of your capital? Should you invest it in a vehicle – or would that capital earn you more if it is invested in other areas of your business?
New cars start to lose their value as soon as you drive them off the forecourt. Would anyone really notice if you were driving a car that’s a couple of years old? Things can look different when you take your ego out of the equation. Professionals moving from corporate life to freelance can be the worst offenders, blowing the redundancy cheque on a flashy car to convince themselves and others that business is booming. In some cases it can indeed help. But more often it would be better to find a way of getting around that lets you hold on to your capital.
When thinking about a new car, it is worth considering some of the less fashionable brands. What Car? Magazine and market research company JD Power surveyed 16,000 UK car owners earlier this year. It enabled them to rank 116 different models of car of 1 to 3 years old against 66 criteria to create an overall satisfaction level. Skoda took the No.1 and No.2 spots (Skoda Superb and Skoda Yeti).
Electric can be practical
And don’t forget the electric options. They may be more practical – and more affordable – than you think. The tax benefits are attractive. New research shows that people tend to drive much shorter distances than they think they do. In fact, 95% of trips are under 30 miles. That is well within the range of electric vehicles.
Buying from savings is almost always the most cost effective option. But it that’s not possible there are a range of finance options, including a personal or business loan. According to Money Advice, hire purchase can be a competitive option when you are purchasing a new car, but less so for secondhand cars. Japanese cars top reliability surveys, with Honda at the top. In this case, you could go directly to the finance offers that Honda have on their cars, but, you should also look at sites sites as Autotrader, Parkers or What Car?
The following simple guidelines from Money Advice should help you make sense of the options:
- Make sure that you can afford the monthly payments;
- Compare APR interest rates, and don’t forget deposit amounts;
- Compare total cost of purchase including all interest and other charges;
- Beware of early repayment or other charges.
Tax benefits are another key consideration. At the simplest level you can claim a mileage rate against tax for all journeys that are wholly for business purposes. Or you could claim the business related proportion of all your car costs. See the HMRC guidelines. Beyond that if you are looking at HP or leasing, there are various factors to weigh up, including VAT, emission levels, cost and duration. It can be worth consulting your accountant. A business vehicle is a significant investment. Always make sure you get independent advice.