Which one to choose: a car loan or leasing?
Have you ever dreamed of a fast car, or would you like to replace your old car with a newer model? Nowadays, having a car is a necessity that not everyone can afford. A car is an investment for years, so it's worth considering whether to take a loan or lease a car. Buying a new car is a big step that requires you to have a lot of money in your bank account, therefore, you should consider different leasing and loan options to make the right decision.
Leasing or loan?
1. Financial cost of leasing and credit
First of all, various banks apply a different margin policy when granting loans to private customers and companies, depending on many variables (e.g., the borrower's credit score, type of loan, etc.). Therefore, leasing is often perceived as being more expensive than a loan, but in practice leasing is usually a cheaper option due to the possibility to negotiate the terms of the credit agreement, while many banks are stricter with their loan offers.
2. Tax benefits of leasing and loan agreements
The type and age of the fixed asset affect the tax benefits (depending on the financing method). It’s also influenced by the individual tax situation of the entrepreneur. In the case of vehicles, especially cars, operational leasing gives a much larger tax shield in a shorter time, but when buying on credit, you are tied to a 5-year depreciation.
The advantage of leasing is undoubtedly having fewer obligations. It manifests itself in the very way the leasing offer is presented, such as the costs that will incur for the first payment, leasing instalments, etc. The total cost of the offer is a value that allows you to easily compare offers of various leasing companies. A credit offer looks completely different. Preparation fees, additional insurance, etc. make it necessary to spend more time comparing credit offers.
Settlement of damages is a bit easier with a loan, however.It is true that in case of a total loss, the settlement method is basically the same. On the other hand, in case of partial damage, minor bumps, etc. it is the entrepreneur/owner who has taken a loan that is responsible for covering all costs of the damage. However, with leasing it is simply necessary to inform the insurance company, which will compensate the cost of fixing any damages (they may refuse if the contract is overdue with instalments).
Types of loans
Depending on which car you want to buy, you will find various loan offers, including:
- Loans for used cars;
- Loans for new cars;
- Loans for electric cars.
Car loans depend on the amount you want to borrow and the repayment period. In case of a non-bank loan, most lenders will not ask you about the purpose of the loan. Some creditors offer non-purpose loans up to 10.000 $.
Which loan to choose?
First, verify your lender. If you are considering a loan from a non-bank institution, it is a good idea to analyse your options and compare the loans as to their interest rate, amount and repayment period. You can use the Moneezy loan comparison tool and follow the instructions:
1. Select the verified creditor and click on “apply”
2. Select the amount and repayment period
3. Fill out the application
4. In case of an approval, receive the money and enjoy your car
Leasing is a popular option among company owners. The maximum lease term can be up to 5 years and depending on the type of car, you will have to determine the size of your own contribution (usually it is a deposit ranging between 1-30%). The advantage of this type of lease is its flexibility and the ability to replace the car with a newer model from time to time.
How to apply for car leasing?
First of all, pick a car that meets your needs and budget, then do the following:
1. Choose the leasing company
2. Select own contribution percentage
3. Select lease term
4. Buy or replace your car with a better model
Depending on your needs, it is worth considering what is more beneficial to your account and what your future intentions are as to the use of the car. If you have your own business, think of leasing as an alternative to a loan. Leasing gives great tax benefits, especially when financing new property, in particular passenger cars. It does not burden the company's creditworthiness as much. Obtaining it is also relatively easy. For new companies with no financial history, leasing may be the only way to acquire fixed assets. However, there are also situations when a bank loan may be a better solution.