Buying a car – loan or leasing?



Before you go to your car showroom or car dealership for the first time, it pays to devote enough time to choosing options to fund your car. New, or. reasonably used vehicles are not exactly cheap. This investment will affect your family or corporate budget in the next few years.

The easiest way to finance a new car would be to buy it for cash. But not everyone can afford it. Let’s see how to get a new car.

 

The main ways of financing the purchase of a car

car loan

Non-purpose loan:

  • You have the opportunity to be the owner of the vehicle you purchased
  • Everything around the car you will get and pay for yourself
  • You buy a new or old car

Special-purpose (secured) loan:

  • You do not mind that during the repayment period you are not a full owner of the vehicle
  • Everything around the car you will get and pay for yourself
  • You buy a new or old car

Financial leasing:

  • You do not mind that during the repayment period you are not the owner of the vehicle
  • You have cash available for deposit
  • You will pay the car insurance in monthly installments, you will pay for the maintenance and operation of the car yourself
  • You are buying a new car

Operating lease:

  • Do not mind that you will not own the vehicle
  • Do you want to leave the insurance, maintenance and servicing costs of a leasing company vehicle and in this context you do not mind higher installments than with a financial leasing
  • You do not necessarily have to make a down payment
  • You are buying a new car (often as an entrepreneur)

 

Popular non-purpose loan

car loan

It is currently the most widespread way of buying a car. If a bank or non-bank lender provides you with a non-purpose loan and you buy a car for that money, then you are the owner and you can dispose of it as you see fit. This means that you can, for example, lend it to whomever you want, drive any number of kilometers with it, arrange motor hull insurance or liability insurance where it suits you best, etc.

In addition, in the case of MTPL, as the owner of the car, you can claim bonuses for previous accident-free driving. You can also sell your car in the middle of repaying a consumer loan and repay the rest of the loan. You may be charged for early repayment. When you purchase a loan, you usually choose the repayment period according to your own needs or possibilities.

Entrepreneurs can deduct VAT on the purchase price at the beginning of the repayment and as a car owner also make tax depreciation.

For both classic loans and leasing, you will find that the bank or non-banking company thoroughly checks each applicant for the loan. For example, it shows how you were doing with repayment in the past, you document the amount of income (from the employer, account statement, or tax return for entrepreneurs).

For some, the disadvantage is that as a car owner you have to pay for “all your operation, maintenance and repair”.

 

Special-purpose (secured) loan

secured loan

You can also purchase a car on a loan, under whose contract you undertake to use the funds provided for the purchase of a motor vehicle. Complete the special-purpose loan. This is usually secured by the vehicle purchased. You are its user and operator, so you take care of it and you can drive any number of kilometers with it, but there are some limitations, for example, you can not lend it to a third party on a long-term basis or make design modifications to a vehicle without the financing company consent .You can usually take out motor hull insurance and motor third party liability insurance where it suits you best, with the only limitation that the indemnity will be blocked (pledged) in favor of the financing company . If, for example, your car is stolen,This means that the financing company is the owner for the loan repayment period. the premium will go to the lender. After repaying the loan, you will become the de facto owner of the vehicle. If you are an entrepreneur, you can depreciate your vehicle and operating costs in taxes.If you would like to sell the vehicle, you first have to pay off the loan or obtain the approval from the financing company.

 

Classic or financial leasing

Classic or financial leasing

As with a secured loan, the leasing car is not owned by you until the last installment is paid. The leasing company is the owner of the vehicle in the technical certificate. However, after the repayment, you can buy the car at a pre-agreed price, which today is rather symbolic. Should you run into repayment difficulties, the leasing company will take the car back.

The fact that you are not the owner of the vehicle has its limitations. With a car, you can’t do what you think: often you can’t let it be driven by someone not on the leasing contract. The car can not just sell and if you damage it, you have to count with considerable costs. As a rule, you can not also choose accident insurance or liability insurance at will, but the leasing company will offer these products as part of loan repayments. In addition, motor hull insurance is a condition for concluding a contract. This naturally increases monthly payments.

If you decide to sell such a car, you will have to pay for the termination of the contract in addition to the rest of the lease. All this, of course, provided that this possibility is enshrined in the leasing contract.

A limitation for someone may be the obligation to deposit a so-called down payment at the beginning, ie a certain amount of money from the purchase price of the car (eg 30%). This can be found not only for leasing, but also for a loan, when you deposit a certain amount of money to the lender. Currently, financial leasing for tax depreciation is the least advantageous financing option.

 

Operating lease

Operating lease

Initially, this method of car purchase was popular especially in the corporate sector, but in recent years it has been spreading among ordinary consumers.

The big advantage is that you do not have to worry about anything, you pay monthly rent for the provided vehicle and every few years you can have a new car. Legally speaking, it is a lease relationship, so the subject of the lease, ie the vehicle in use, is unlikely to be your property even after the contract expires (however, depending on the contractual conditions set by the particular leasing company, a subsequent sale can be arranged). Also, you do not have to make a down payment at the beginning of the lease. The operation, maintenance and repair of the car is covered by the leasing company. Therefore, the monthly installments are usually higher than in the case of conventional leasing.If the rented car becomes immobile, you will usually receive a replacement vehicle from the leasing provider.

A disadvantage may be a certain mileage per year, which many leasing companies embed in the contract. Also, “your” car will not be driven by anyone other than the one specified in the contract. Even in this form of leasing, the conclusion of accident insurance is usually a contractual condition.

Whichever way you decide to go, we recommend that you always read the agreement carefully. You can avoid some surprises in the future.