Company Car Or Cash Alternative?

Should I take an offer of a company car, or opt for the cash alternative instead? This is a question many prospective company car users ask, so here's our simple guide setting out the pros and cons of both.

A company car may seem like a great, hassle-free idea, but before you jump on the bandwagon, it's worth considering the benefits of opting out of the scheme – even if you have to drive for your job and would need to buy a new car privately.

Buy a car outright and you'll be investing in an asset that you'll be able to sell in the future. Moreover, company car schemes often have limited choice - only offering cars from one manufacturer, vetoing higher spec models such as cabriolets, and limiting engine size. Even senior executives may find themselves restricted by C02 emissions or safety ratings, both of which can affect leasing costs for an employer. Choose a car privately and you can also choose between petrol and diesel - an employer may encourage a diesel.

How much money could I get if I opt out? The cash you'll be offered instead of a company car will be roughly what your employer would have paid to lease the car, possibly with a few caveats depending on their calculation method and on each individual employee. If you want to know how much money is on the table, ask your fleet manager, HR department or payroll staff. Once you know the cash value, the first thing to bear in mind is that the money will be added to your annual salary, so will be subject to your rate of personal income tax. Techincally, it means you'll have less to spend on a private car than the value of the company car lease you would have enjoyed. For example, a 40% taxpayer with a car allowance of £5500 added to their salary could end up with just £3300 after tax. From that you’ll not only have to fund the private car, but pay for your own insurance, maintenance and road tax.

If I don't have enough to buy outright, how could I finance a car? There’s a big choice 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. However, if you’re not bothered about owning the car, and remember that despite being an asset, cars do depreciate in value quite rapidly, you could consider personal contract hire (you may hear it called personal leasing), 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. A PCP is 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 (agreed in advance).

One of the perks of a PCP or leasing is that you can choose to pay a premium to have all 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 to budget for this and have the extra funds available. If you go for a private car owned outright, then you’ll also need to sort out your own insurance, road tax, roadside assistance, and budget for potential repairs. That sounds like a lot of hassle.