Car loan or leasing? The most important differences


Entrepreneurs who plan to buy a car for the company must decide whether to use a loan to buy a car or maybe a lease. It is easy to guess that there is no single answer to this question. It is worth knowing the pros and cons of each of these solutions, because they can help us make the final decision, for the benefit of the company.

Car on credit – advantages

Car on credit - advantages

When we intend to buy a car or other vehicle for a loan , we usually take a special-purpose loan. In this case, the bank grants us a loan for a predetermined purpose, which is buying a car. The terms of such indebtedness are usually quite favorable because the vehicle becomes a collateral for the bank. It is worth noting that for the money obtained in this way, we can buy any vehicle of our choice, also used or imported from abroad. In most cases, the bank also gives us the opportunity to pay off all debt installments early or to temporarily suspend the loan.

What’s more, entrepreneurs also get the opportunity to deduct VAT, in whole or in half, as soon as they receive the purchase invoice. However, the exception here is the VAT invoice margin, which unfortunately means that we have no right to such a deduction. This type of investment is also included in the costs of depreciation. The most important, however, is that after settling the debt towards the bank, we become the full owners of the vehicle and we can do anything we want with it. And if the car is not included in the contract as collateral for the loan, its fate and prior sale, we can decide even when paying off the debt.

Car on credit – disadvantages

Car on credit - disadvantages

One of the biggest disadvantages of credit is formalities. The amount of documentation that we need to collect and present in the bank can be discouraging. Therefore, visits to such an institution to obtain credit often seem endless. In many cases, the lender requires his clients own contribution or appropriate security, which can also be purchased a vehicle.

Many entrepreneurs also point to the variable interest rate on such loans as a serious disadvantage. Unfortunately, those whose credit history is not ideal may have problems obtaining this type of loan. Problems with repayment of any liabilities in the past have an impact on our credibility in the bank’s assessment. It should also mention the restrictions on including the value of such a vehicle in tax deductible costs. As for passenger cars, depreciation charges up to the equivalent of EUR 20,000 may be the tax cost.

Car leasing – advantages

Car leasing - advantages

Leasing is actually a kind of long-term car rental. There are two types: operational leasing and financial leasing. In the first case, the lifetime of a particular vehicle is usually shorter than the period of total wear, and the contract cannot contain a redemption clause. However, when it comes to financial leasing, the useful life usually lasts as long as the car’s depreciation period and it is possible to include a redemption clause in the contract.

The biggest advantages of leasing should certainly include a very small amount of formalities to do. The whole process and related procedures are extremely simple, and the entrepreneur does not have to worry about the need to prepare a huge amount of documents. What’s more, even if the bank rejects our application for a leasing loan, we can still count on a positive leasing decision. When it comes to operating leasing, we pay fixed, fixed fees that can be fully included in tax costs. In addition, we can also regularly deduct VAT from each subsequent invoice. In the case of financial leasing, however, we can include it in the cost of depreciation charges.

Car leasing – disadvantages

Car leasing - disadvantages

Contrary to appearances, car leasing also has many disadvantages that may discourage entrepreneurs from using this solution. First of all, leasing concerns a specific car, agreed in advance, which must be purchased on the basis of an invoice. There are also very serious restrictions when it comes to buying used cars. Therefore, entrepreneurs must actually buy more expensive vehicles.

It is also worth adding that in the case of operational leasing, the costs associated with it may turn out to be very high. Furthermore, the lessee has no right to decide on the subject of the lease. Which in practice means that we will not be able to sell such a vehicle or exchange it for another one before the end of the contract. And if the leasing contract does not contain a redemption clause, then after its expiry, the entrepreneur also has no right to purchase such a vehicle.

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