If you’re in the market for a new car and debating between using your personal vehicle or investing in a new one for business purposes, there are a few things you’ll want to keep in mind. Before we dig into the top considerations, let’s discuss the finances and budget around buying a new car for your business or using your vehicle.
If you’re still making payments on your vehicle, you may want to refinance your car loan to reduce costs, freeing up cash to adjust your budget. Then, regardless of whether you choose to use your car or buy a car for business, you’ll have a little wiggle room in the budget.
There are four factors to consider, from depreciation to tax deductions, before deciding.
Depreciation
Vehicles are a big financial commitment, and their value depreciates quickly. You don’t have to worry about the initial depreciation when you use your personal vehicle for business because you’ve already absorbed that loss.
According to depreciation schedules, new cars can lose up to 20% of their value as soon as you drive them off the lot, and over the first five years, they can depreciate by as much as 60%. So, if you were to buy a new car specifically for business use, that would be a significant expense.
However, if you use your personal vehicle, you’ve already paid that cost. Therefore, using your vehicle for business can save you money in the long run.
Tax Deductions
Businesses, large and small, often face the need for reliable transportation. Whether it’s for sales representatives to get to client meetings or delivery services to ensure goods reach their destination, a dependable vehicle is essential.
Fortunately, several tax breaks are available for businesses that purchase or lease cars specifically for business use. For example, you can deduct a percentage of the car’s total cost, including sales tax, registration fees, and interest, on an auto loan.
Alternatively, if you choose to lease a car for business purposes, you can deduct the entire amount of lease payments made throughout the year. So if your business requires a new set of wheels, take advantage of these generous tax deductions.
Convenience
Another thing to consider is convenience. If you already own a car that meets your needs and is reliable, then it may be more convenient to stick with what you have. Having two vehicles can mean extra insurance costs and deal with maintenance on two cars instead of one.
Of course, if your vehicle isn’t suitable for business use—say, it doesn’t have enough room to transport equipment or clients—then it might make more sense to get a dedicated business car.
Peace of Mind
You expose your personal vehicle to several risks when you use it for business purposes. If you’re in an accident, your auto insurance may not cover the cost of repairs or replacement. And if your car is stolen or vandalized, you could be left with a hefty bill.
With commercial auto insurance, you can rest assured that your business vehicles are protected. If something happens to them while they’re being used for work, your policy will likely cover the cost of repairs or replacement. So you can focus on growing your business without worrying about what might happen to your vehicles.
Insurance
Insurance is essential when deciding whether to use a personal or business car. If you plan to use your vehicle for business purposes, it is necessary to get commercial auto insurance. This type of insurance is designed for business use and is much cheaper than personal insurance.
Insurance companies consider things like Uber, Lyft, PostMates, and other delivery services for business use. You can be penalized if you use your car for these things without updating the insurance. To get the best rate possible, let your insurance company know about any business usage you have planned for your vehicle.
Do What’s Best for You and Your Business
When a small business owner is trying to decide whether to use their vehicle or invest in a new one strictly for business purposes, there are a few things they should take into account.
The first is the depreciation rate; a new car will lose value much faster than an older one. The second is the availability of tax deductions; depending on the type of vehicle and how it is used, the small business owner may be able to deduct a portion of the cost from their taxes.
Ultimately, the best choice depends on each small business owner’s specific needs and circumstances. As a leader and boss, you have the final choice in your hands and your wallet. A new car may be the best option if you need a large work vehicle or frequently travel long distances for meetings. However, your vehicle may be better if you only use their car for local errands and have a limited budget.
