Why “Buying Used” Isn’t Always the Cheap Option It Looks Like for Your Small Business

If you run a small business and need to change your car, buying used can seem like the obvious money-saving option.

Why pay for a brand-new car when you could buy a two, three or four-year-old model for considerably less?

It sounds logical. But there is an important question that often gets overlooked:

How are you actually going to pay for it?

Once you factor in finance costs, depreciation, maintenance, tax considerations and the value of keeping cash within your business, buying used may not be quite as cheap as it first appears.

That doesn't mean buying used is the wrong answer. It means it is worth comparing the real costs before deciding.

A £20,000 Used Car Still Has to Be Paid For

Imagine you find a used car for £20,000.

If you have £20,000 available, you could simply buy it outright. But for a small business, that money may have other uses.

Could it fund marketing? New equipment? Additional staff? Stock? Or simply provide a valuable cash reserve?

Using cash has an opportunity cost even though there isn't an obvious monthly finance charge.

Alternatively, you might finance the used car through dealer finance, a personal or business loan, HP or PCP. Now the purchase price is only part of the calculation because interest and fees need to be considered as well.

That is why comparing £20,000 used with £35,000 new doesn't necessarily tell you which is the better financial decision.

You need to compare how much each option will actually cost you over the period you expect to keep the car.

Used Car Finance Versus PCP

PCP can make a new or nearly-new car look surprisingly affordable because a substantial proportion of the vehicle's anticipated future value is deferred to the end of the agreement.

That can produce a lower monthly payment than financing the entire purchase price.

But again, look beyond the monthly figure.

Consider the deposit, monthly payments, interest, mileage restrictions, potential end-of-contract charges and the optional final payment if you want to own the car.

With a used car, also consider what it might realistically be worth when you eventually sell it.

Neither route automatically wins.

NEV Leasing can help you compare the total funding cost rather than simply comparing monthly payments. Ask us about our funding cost comparison calculator.

What About Personal Contract Hire?

PCH takes ownership out of the equation.

You effectively pay to use the car for an agreed period and mileage and return it at the end, subject to the contract conditions.

For somebody who likes changing cars every three or four years, this can make budgeting relatively straightforward.

You don't have to worry about what the car will be worth when you sell it because the leasing company carries the residual-value risk.

The downside? You don't own an asset at the end.

But that raises another useful question: do you actually want to own a depreciating asset, or do you simply need reliable access to a car?

There isn't one answer that suits everybody.

Could the Business Contract Hire the Car?

If the car is genuinely being provided through your business, Business Contract Hire (BCH) deserves consideration too.

Rather than buying the car, the business pays rentals over an agreed term.

Tax treatment can also be relevant. For example, HMRC rules currently restrict the deductible rental expenditure on many leased cars emitting more than 50g/km of CO2 by 15%, whereas the restriction does not apply to qualifying lower-emission and fully electric cars.

Your accountant can advise how this applies to your particular business.

There is another practical consideration: will the business qualify for the finance?

Funders have their own underwriting criteria. A well-established business with strong accounts may have considerably more options than a company that has only recently started trading. Some funding routes can therefore be easier to access once a business has an established trading history.

NEV can explore the available options before you commit yourself to one particular funding method.

Your Choice of Car Could Change the Answer

This is where the comparison becomes particularly interesting.

If you're considering a petrol, diesel, hybrid and electric car, the most appropriate funding route may not be the same for each.

An electric car, for example, can potentially work particularly well as a company car because company-car taxation is linked to the vehicle's CO2 emissions.

And if you are an employee or director of your own company, an electric car could open another possibility: salary sacrifice.

Instead of the business simply absorbing the cost of providing the car, an eligible employee sacrifices part of their gross salary in exchange for the vehicle. Low-emission cars receive specific treatment under the salary sacrifice tax rules, making electric cars particularly relevant when considering this route.

It means the question isn't simply:

“Which car should I buy?”

It could be:

“Which car should I choose, who should fund it and which funding structure makes the most sense?”

Speak to Your Accountant – But Also Speak to NEV

Your accountant may already have suggested buying, leasing or putting a car through the business.

That's valuable advice, particularly when tax is involved.

But an accountant may not necessarily know the current finance rates, leasing offers, manufacturer support or residual values available across the vehicle market.

That's where combining their tax advice with NEV's vehicle and funding knowledge can be useful.

Tell us what your accountant has suggested and we can help investigate the vehicle funding options that could fit alongside that advice.

Don't Assume Used Means Cheapest

There are plenty of situations where buying a used car is a perfectly sensible decision.

But don't make the decision simply because the sticker price is lower.

Compare:

• the cash required upfront;
• interest and total finance costs;
• expected depreciation;
• servicing, repairs and warranty cover;
• tax implications;
• the value of retaining cash within your business;
• how long you intend to keep the car;
• whether you want to own it at the end; and
• whether petrol, hybrid or electric changes the calculation.

The interesting question isn't “new or used?”

It's “what is the most appropriate way for me and my business to fund the car I need?”