Car Finance Calculators and Guides.
Car Finance Calculators and Guides

Company Car or take the cash?

People who have the option to have a company car often ask themselves if they should take the company car, or opt for the cash alternative instead. In this article we will address the pros and cons of the options open to you in this situation.

A company car may seem like a hassle free easy deal but like all options with cars there are benefits to staying in or opting out of a scheme even if your job involves a lot of driving.

Is opting out a good idea?

If you choose to buy a car outright you will, in theory, be investing in an asset that you'll be able to use when trading in for a new vehicle in the future. Choosing the vehicle yourself means you have a greater choice of car then your employer may offer.

Some schemes may only offer cars from only one manufacturer, or will could limit engine size and not include stylish models such as coupes and convertibles to their list. Even if you hold a senior position in the company the cars available to you may be limited due to the CO2 emissions or safety ratings of the vehicle. These factors affect the leasing costs for your employer.

Choosing a car privately also gives you the freedom to choose between diesel or petrol models, whereas your employer might lean towards diesel for their mpg efficiency. Please note that recent press around diesel pollution will no doubt have an impact in company car choices in the future.

What is the cash equivalent?

In most cases your company will offer you the equivalent of what they would pay to lease the car themselves. This may vary between employees depending on the calculations made and the ‘band’ of company vehicle you were assigned in the company scheme. To find out what offer is available to you just speak to the person who deals with the vehicles in your company and they will give the figure.

Don’t be too excited by the lump sum value you are given as you need to remember this will be paid in via your salary and thus subject to the taxable rate based on your personal circumstances. Overall you'll have less to spend on a private car than the value of the company car lease you would have enjoyed.

As an example, a 40% taxpayer with a car allowance of £6000 added to their salary could end up with just £3600 after tax. Also you’ll not only have to fund the private car, but pay for your own insurance, maintenance and road tax and general wear and tear.

How do I finance a car if I don’t have enough to buy it outright?

As detailed in the website there are a number of finance packages out there. If you want to own the car, the simplest options are a bank loan or hire purchase (HP) agreement. Once you’ve paid back the HP monthly instalments, the car is yours to keep.

If car ownership is not an issue then you could consider personal contract hire (PCH) as well as personal contract purchase (PCP). Both offer lower repayments than a bank loan.

With personal contract hire or leasing, you pay a deposit plus fixed monthly amounts, and hand the car back at the end of the term.

PCP’s are similar, but at the end of the contract you’ll have the option to buy the car for a lump sum based on the car’s residual value, which is agreed in advance. This value will be influenced by your predicted mileage, which will also affect your monthly payments – so estimate as accurately as you can.

Finding the right PCP or personal will involve research, as there are so many variables involved. You’ll see variation in the size of the deposit, the length of the contract, and whether insurance is included or not. It’s about finding the right deal that suits you.

When it comes to leasing the price of a vehicle can depend on the popularity of the model, and therefore its predicted resale value. Leasing is very competitive, so once you’ve chosen a car its imperative you shop around for the best rates and package.

What other costs do I need to consider?

When entering a PCP or leasing deal you can choose to pay a premium to include servicing, maintenance and roadside assistance taken care of. That means your personal motoring can, in theory, be as worry-free as running a company car.

You may be able to include a service package with an HP deal, but if you're buying with a bank loan you'll need to work out what money to set aside and have this available for running costs etc. If you go for a private car owned outright, then definitely have to arrange the insurance, road tax, roadside assistance, and budget for potential repairs.

Is the Company Car the easiest option?

Opting for a company car certainly takes all the thinking out of the process. Many employees stick with a company car because the lease company takes care of all the housekeeping, too. For some people, this lack of effort can justify the cost of company car tax on its own.

Some companies have a bog standard list and give you the option to up the spec of the vehicle but you have pay for this out of your own pocket in addition to the allowance.

If you are prepared to research the options you can end up with a great car using either the company car scheme or taking a cash alternative.