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Company car or car allowance – which is best for you?

Firstly, if you get either a company car or car allowance, then you are in a good place. Both are signs of positive career progression, being valued and generally having a positive financial impact. So, now it’s down to the detail: which is right for you?

Overall, a company car can mean less hassle for you, as everything’s taken care of. On the flip side, a car allowance typically provides greater flexibility and choice. Let’s take a closer look at which is right for you: a company car or car allowance?

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Heads up – We aim to produce honest and accurate content, however, we are not financial advisors. If you need financial advice, Unbiased can connect you with a suitable professional for free. Some of our links may earn us a small commission to help us run the site.

Comany Car - five benefits

1. No extra costs to budget for

Typically, your employer will pick up the tab for most things, including insurance, servicing and repairs. This could save you up to £150 per month.

2. No nasty surprises

When something goes wrong, such as a puncture or big repair bill, your employer foots the bill. This means your Emergency Fund is safe. So, less money and less hassle.

3. Less stress

Time is money. So, let the Fleet Manager take care of details such as servicing and MOTs, whilst you focus your time on what makes you money or happy.

4. Drive a brand new car

Most company cars are fresh off the factory line. They also tend to get replaced every 2-3 years,  meaning you’re driving the latest whip on a regular basis.

5. Pay almost no tax

Go for an electric car, and under current legislation, from 2022 you’ll pay just 2% Benefit in Kind tax until 2025. That’s a big difference compared to many conventional company diesels racking up a 25-40% tax bill. For example, opt for a £41,500 Tesla Model 3 Standard Range, and you’ll be motoring in eco-friendly style for a measly £29 a month. Yes, a month.

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Car Allowance - the advantages

1. Choose your own car

With a company car, you often get very little choice. With a car allowance, however, you get to choose the car and have much more flexibility. Just be sure to check the company’s car allowance policy, as there are usually some conditions.

2. Select your own finance

You can decide how to finance your car; cash, loan, PCP etc. This gives you much more flexibility. The car allowance is then simply used towards whichever method you chose.

3. Keep the car

With a company car, you are often forced to change cars on a fairly regular basis. That’s fine if you want a new car every three years. However, depending on how you finance the car, you may want to keep it longer than this.

For example, you may have originally funded the car through a four-year bank loan. Once that’s been paid, however, you may want to keep it for a few more years without the loan repayments. You can then use the money saved towards other things, such as boosting your investments.

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4. Change the car

Exactly the opposite. Don’t like it? Change it. Circumstances changed and need something different? Change it. The choice, is literally, yours. Not something that company car drivers are familiar with.

5. No tracker

To keep abreast of company fleet ‘statistics’, many employers will fit trackers to company cars. This is, of course, to track the company asset, not the whereabouts of employees. On the flip side, with a car allowance, it’s your car, so no trackers.

6. You may even make money

You may already own an appropriate car for work and then negotiate a car allowance. And if you already own this car outright, then you’re in the money. Simply take the car allowance and use it to invest. You know it’s the right thing to do.

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Whether a company car or car allowance is right for you is a personal decision.

Ultimately, a company car is less stressful. But a car allowance offers greater flexibility. So, do the sums and decide which you value more.

Of course, time is money. So, if you think the company car will save you more time, even if it costs you more money, fine. Just remember to do something productive that generates income with that time saved. Otherwise, it’s a false economy.

If you still have questions, please come join our supportive UK Personal Finance club on Facebook. You will find other like-minded individuals. It’s a safe, private community where you can ask questions and learn more about making the most of your money. Best of all, it’s free! We’d love to see you there.

Here’s to your Financial Fitness does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. If you need financial advice Unbiased can connect you with a suitable professional for free. Investments may go up as well as down and you may get back less than you put in.