BUY OR RENT A CAR?
Find out now about the differences between Operating Leasing and buying. You have decided that you want to get a new car. Do you need to get it through a loan, lease or cash payment?
Only about 10% of all car purchases are in cash. If you prepay for the full cost of your car in cash, you benefit from the cost of borrowing. However, the following should apply:
- you will not calculate this money available for investment or
- for additional business uses or
- in case of liquidity emergency.
Operating Leasing - Leasing or Lending
- Reduced initial cost. In Operating Leasing there is always a very strong advantage over the loan: The lower initial cash cost. Long-term leases usually require a small down payment to get the car to your company. The better your credit score, the less cash is required at the start of the lease. In addition, in some cases and at your discretion, you can achieve a reduction in "capitalization costs" by paying an increased first monthly rent, which essentially acts as a down payment.
- Equity and ownership. Under the long-term lease, you will not own the vehicle at the end of the lease. In the case of loan financing, a gradual increase in equity is achieved by repaying the vehicle. However, the total cost you will spend is quite high. Even if you own the car after making all the loan payments, you will take the risk and the chance that it will be worth much less than the amount you spent to get it. Cars will be an asset to your company, losing more and more of their value on a daily basis.
- Taxes and insurance. When you buy the car you will have to pay VAT, and the registration taxes. With a long-term lease you pay these taxes gradually and they are spent on a yearly basis, or you distribute them on the basis of sales during the lease. At the same time, you exempt your company from the costs of insurance coverage and the risk of a large increase in them.
- Other differences. If we compare the cost of the lease and the loan with exactly the same data, it turns out that the monthly payments in the lease are much lower than the loan payments. Because of this, you can generally add more options - equipment to your vehicle or upgrade to a more expensive model than you could afford on a loan. Also, think about how often you want to change your car. Does the lease ultimately serve you because you can drive a new car every three, four, five years, instead of being trapped along the traditional loan, taking the risk of buying?
Benefits of renting with lower monthly payments
- Minimum or no increase payment
- Use a more expensive car with less monthly payment
- More cash, which is available for other uses of your company
- Gradual payment of state taxes, such as VAT, special registration fee, luxury tax, which are paid until the end of the lease and not at the beginning, as is the case with the purchase
- Tax advantages - deducts the monthly rent 100% as an expense
- Payment scheduling - scheduled budget.
- Exemption from disaster risk
- Exemption from vehicle theft risk
- Exemption from procedural issues
Disadvantages of Leasing
- Possible liability for early termination of the lease
- Wrong budget resulting in increased costs at the end of the lease, such as excessive vehicle damage from misuse by drivers and extra charge due to exceeding agreed kilometers of use.