Whether you’re an executive trying to decide between taking a company car or a cash alternative, or a business owner looking to offer this perk to your employees, there are pros and cons to consider before you decide on which option is best for you.
If driving long distances is part of your job role or you need to look the part in a smart executive sedan when pulling up to important client meetings, a company car may be the option to go for – however, there are some perks to the cash allowance too. Today, we’re taking you through the pros and cons of each option, as well as highlighting any key considerations to keep in mind when deciding whether a company car is right for you.
Why opt for a company car?
A company car is a big perk granted to many lucky employees all over the world – and this easy, low-commitment option usually allows you to get your hands on a smart set of wheels for business and personal use.
- Many employees opt for a company car as the easy option. The employer’s leasing organisation will take care of registration, tax and insurance – meaning all you need to do is sign on the dotted line and pick up the keys. In a busy job, the hassle free option of a company car can be highly tempting
- Typically, you won’t need to worry about servicing or maintenance costs, as these are covered as part of the lease
- Most employers offer a range of modern, comfortable and low emissions executive cars, offering you the chance to drive something you couldn’t otherwise afford – with premium brands like VW, Audi, BMW and Mercedes often making appearances on the company car options list
- If you buy your car privately, on a finance deal, you may be subject to mileage restrictions – making a company car more suitable if you regularly drive long distances
- As you don't own the car, you don’t need to worry about it depreciating over time or its resale value. Most companies will lease their cars on 2-3 year contracts, meaning you’ll get a brand new car every few years – a luxury which many private owners can’t afford
In spite of the benefits to taking a company car through your employer’s leasing scheme, you could be better off taking the cash to purchase your own or leasing privately. In the UK, for example, company car drivers are heavily taxed based on their vehicle’s emissions – a bill which they have to pick up every year. This can make going for the cash a more cost effective alternative.
What are the benefits of the cash alternative?
An increasing number of employers are offering their employees a cash alternative or ‘allowance’ as a perk when they opt out of the company car scheme. While this amount varies depending on your country’s tax laws and your employer's calculation methods, it should equate to roughly what the company would have been spending on leasing your company car.
If your organisation is offering a cash alternative, speak to your payroll department to find out how much you could be entitled to. If you opt for the cash, it’s typically paid as part of your salary, meaning it gets taxed at the same rate as the rest of your earnings – so you’ll have less to spend on a private vehicle than you would otherwise receive in the value of your company car. That being said, with a company car, you’ll never actually own your vehicle outright, so the cash alternative provides you with an allowance to put towards a real investment.
- If you buy a private car outright or through a car finance agreement, you’ll be investing in a tangible product, with the ability to sell the car once you’ve paid it off
- Many employers, especially in the UK and Europe, push their employees towards opting for low-powered and fuel efficient diesel cars. Buying privately gives you a choice of engine and fuel type, meaning you can get your hands on something a little more exciting
- Through buying privately, you’ll be able to choose the car you want – whereas most company car schemes are limited to sedans and estates. By opting for the cash, you could get your hands on something a little more stylish or practical, such as an SUV, depending on your needs
Going solo and buying your own car
If you do decide to take the cash and don’t have enough saved to buy a car outright, car finance presents the best option. It’s important to do your sums at this point to work out the most cost efficient option, as monthly repayments can vary dramatically depending on a number of factors. Car finance deals for bad credit holders often command higher interest rates, and the list price and length of the repayment period you opt for can also affect your monthly outgoings. Don’t forget you’ll also need to factor in things like fuel, tax and maintenance – so it’s worth spending some time working out how much you’d pay for a company car vs how much you’d pay for your own car to figure out the best option for you.
Adam Hope is an auto blogger for The Car Loan Warehouse, providing competitive car finance deals to suit any and all circumstances.