Buying a company car for your business can be a big step forward with a lot of decisions to explore. You’ll want to find a vehicle that is affordable, fits your company image, and meets your needs. We’re here to help walk you through some of the important things to consider as you investigate buying your own company car.
Business Loan vs. Personal Auto Loan
If your business doesn’t have the funds to purchase a car outright, then you’ll need to fund the purchase with a loan. When it comes to financing your company car, you have two options – a business loan or a personal auto loan.
A business loan can be a great way to help keep your personal and business finances separate. In order to purchase a vehicle as a business, you’ll need to have your business registered and have an Employer Identification Number (EIN). Using a business loan helps limit your personal liability for the loan unless your situation requires a personal guarantee. This can also be very beneficial in building up your company’s credit and establishing a positive credit history, helping to promote future growth opportunities for your business. However, keep in mind that you may have difficulty qualifying for a loan if your company doesn’t have enough credit history or if your personal credit is poor.
A personal auto loan can be easier to qualify for, especially if you have good credit. It may also be a much quicker process – you won’t need to have your business plans and financials examined. There’s also no need for collateral on the loan, which may be required for a business loan. However, you’ll find that the lending limits on a personal auto loan may be lower than that of a business loan. Additionally, there is the potential for paying a higher interest rate. You will also need to take on the personal liability of the car payments, regardless of how your business is doing.
One of the major benefits of purchasing a company car is the tax advantages that it can provide for you. However, in order to write off vehicle related expenses for your business, you’ll need to have the title of the car in your business’ name. Additionally, only those expenses incurred during business use can count toward your deductions – personal use of the vehicle cannot be used for tax deductions and may need to be documented.
There are a variety of tax deductions that are associated with owning and using a business vehicle, all of which can benefit the business owner. Bonus vehicle depreciation is a deduction available for eligible cars to help offset the cost of depreciation, but there will be an adjusted rate as it only applies for business use. Maintenance costs are also potentially eligible tax deductions, including repairs, oil changes, and tires. Other regular costs like insurance, licensing, tolls, and parking fees may also be eligible for tax deductions. Be sure to check with your accountant and review your plans for your company vehicle to make sure that you’ve made the best possible plan for your business.
Insurance and Liability
When it comes to a company car, it’s important to make sure you’re covered by insurance. You’ll need insurance to cover your vehicle and you’ll also likely need to purchase liability insurance, which covers property damage and bodily injury in the event of an accident. Your personal auto insurance policy will typically have some coverage for business use. However, this coverage may not be sufficient and may leave you and your business liable for costs depending on the situation.
The most common contract for providing business auto liability insurance for your company vehicles is called the Business Auto Coverage Form (BACF). Your insurance coverage will be based on your vehicle, how your vehicle will be used, and who will be driving it. When you start exploring insurance options make sure to talk with your insurance agent to ensure that you have adequate coverage for your situation.
Upkeep and Maintenance
Beyond considering the actual cost of the vehicle, you’ll also need to consider the costs of upkeep and maintenance. While you can deduct your general maintenance expenses, along with the cost of gas and tires, it is important to make a plan for this upkeep. Here are some important questions to ask yourself to get started:
Who will be the main driver of this vehicle?
Who is responsible for the vehicle maintenance and licensing?
What maintenance and upkeep needs to be done to the vehicle?
How much will it cost per month? Annually?
Where will the vehicle be stored?
If you’re planning to purchase a company car, there’s a lot to consider. There are many tax advantages that can help your business, along with expenses and maintenance to plan for. Make sure to explore your loan options to find the best fit for your situation and ensure that you have the proper insurance and liability coverage for the vehicle.
Learn more: 6 Reasons to Consider a Car Loan From a Credit Union