Can You Buy a Used Car as a Company Car?

Can you buy a used car as a company car? Small businesses are booming, and vehicle transport is important. Expenses can be reduced with pre-owned cars, but is it legal?

It is completely viable and legal to buy a used vehicle for your business. Moreover, your company can benefit a lot from such a decision. The main reasons are lower expenses for the purchase and for the vehicle insurance.

Photo of a Subaru

You Will Cut Down Expenses a Lot if You Buy Used Vehicles for Your Business Because of Mileage

When you visit an auto dealership, the chances that you will find a car that is almost brand new are high. What I mean by this is that there is a chance that you will find a car that has only crossed five or ten thousand miles, but even that small mileage can lower the price considerably.

If You Opt For Buying a Used Over a New Company Vehicle for Your Business, You Must Still Be Careful

If you intend to use pre-owned vehicles, there are certain things that you need to be aware of before making any decisions:

  • First of all, you shouldn’t choose a car according to your personal preference, but according to a so-called “blue book.” Basically, each auto dealership has its own book where you can find information about the average value of any vehicle, which is based on mileage and the year of production. You should never pay more for a pre-owned car than the “blue book” suggests.
  • After making your choice, you absolutely must be certain that the vehicle is safe. This means that you will hire a mechanic that will thoroughly inspect all the vehicles in question.
  • If the mechanic discovers some malfunctions that can be repaired, you can use this to negotiate a better price.

Company Credit Can Be Used for Buying a Vehicle

You don’t need to use your personal budget, but there are steps that need to be performed in order for everything to be legal.

Step 1In order to have company credit, you need to have a tax ID number. You can visit the official IRS website and fill out an application.
Step 2Healthy business credit is needed in order to make such purchases. If your enterprise is new, you’ll have to dedicate some time to build the credit. This means paying bills in a timely manner and always having at least 30% of available credit.
Step 3After some time, you should check your credit score. In general, if the score is above 80 (the credit score ranges from 0 to 100,) you are ready to make the purchase.
Step 4With business credit, you are able to buy or lease from commercial sale departments that are specifically designed for businesses. You just need to find out which auto dealership has such a department.
Step 5You’ll need to provide all your financial records before the purchase, and most auto dealerships will ask you to sign a guarantee that you will be responsible for the payment in case the company closes or goes bankrupt.
Step 6After purchase, you’ll have to obtain car insurance. The good news is that commercial departments also offer good deals on business car insurance.
Step 7Finally, the car has to be registered in your company name. The good news is that you can use the business credit for buying the registration as well.

Be Sure to Claim Any Available Tax Deductions

One thing is certain – you can’t escape the tax obligations when purchasing a car. Still, there are certain things that you can apply for in order to lower the tax expenses (while the best thing to do is to contact a tax professional):

  • If the car is exclusively used for business purposes, there are certain tax deductions that you will qualify for.
  • You can acquire certain tax deductions if you purchase electric or hybrid vehicles.

Both New and Pre-owned Vehicles Have Their Advantages

In the end, you’ll have to decide what will be more suitable for your enterprise. Here is a brief overview of what to expect for both types of vehicles.

For pre-owned cars, the main advantages are:

  • As we have stated before, you can find incredibly affordable deals for cars in almost pristine condition. What is more, you will have the information about prices that are derived from auto dealerships from all around the country, so you will have a clear idea of how much should be invested.
  • You can also find much more affordable car insurance for pre-owned cars. This is especially beneficial if you will have more employees that will have to use the car.
  • If the car has been properly maintained and treated with care, there are cases where people have literally returned the investment after selling.

For new cars, the main advantages are:

  • When buying a brand new car, a warranty will be included in the purchase. This means that you won’t have to pay for any repairs if something happens. And, in the first place, the chances that there won’t be a need for any repairs in the first few years are high.
  • Modern hybrid cars have implemented technology that lowers gas emissions a lot. So, you’ll be able to save a lot of money on fuel in the long run. Electric cars can further reduce expenses and even taxes.
  • If your enterprise requires modern technology like hands-free GPS, Bluetooth, or something else, modern cars will have everything already implemented. Installing such equipment can be quite expensive.

Definitely Consider Buying Pre-owned Cars if You Are a Young Entrepreneur

Starting an enterprise is immensely difficult by itself, and things can get much more complicated if you have to make big investments like purchasing company vehicles. Buying pre-owned cars can save you a lot of money, and the quality of your service will most likely not be affected.