Leasing is a solution halfway between the sale and the long-term rental, but it is not financing either. So, let’s find out what exactly car leasing consists of and when it is convenient.
How Car Leasing Works
While in financial leasing, there are three parties at stake (a supplier, a transferring company, and a user), in the case of car leasing, there are only 2: the leasing company and the customer. The car dealership has no role in the leasing because it no longer owns the vehicle, which passes to the leasing company.
Each leasing company has a wide range of vehicles, from simple passenger cars to vans. The company or private individual who needs the means can choose the model and the fittings they prefer.
The user never owns the car in the leasing contract but remains with the service company that previously bought the vehicle. The company makes the car available to the motorist against a monthly fee and an advance payment.
The monthly fee may include additional services, such as routine maintenance, tire changes, and the RCA policy. On the other hand, the advance is also called a “maxi-installment” and represents a sort of guarantee for the monthly fee payment.
Upon expiry of the contract, which generally lasts five years, the lessee can choose whether to redeem the vehicle and register it, pay the residual value, or return it to the leasing company. This option right is the element that makes it possible to distinguish leasing from long-term rental, which provides for the return of the vehicle.
What Happens After the Leasing Contract Expires?
In most cases, the leasing contract duration does not exceed five years. Other times, the contract ends as soon as you reach the contracted mileage. When this period ends, different scenarios open up, and the tenant can choose between other solutions.
Returning the Vehicle
After returning the car, no other obligations are outstanding by the motorist or the company that owns the vehicle—replacing the car with a new one. A new leasing contract is then stipulated, which may provide a different price and conditions due to any promotions—the redemption of the car. In this case, leasing comes closer to long-term rental.
Ultimately, the lessee becomes the vehicle owner by paying the company the residual value through a maxi installment.
Who Can Make a Car Lease?
The car leasing contract was created to meet the needs of companies that need a corporate fleet but prefer not to pay for vehicles. The advantages related to leasing for companies differ from individuals, such as the deductibility of VAT and expenses.
To sign a leasing contract, private individuals must demonstrate that they use the vehicle for business purposes. In general, companies provide specific offers aimed at freelancers and holders of VAT numbers.
Even for private individuals, leasing is a very convenient solution, especially for those who often change cars and do not want to devalue the car, which loses some of its market value yearly. Thanks to leasing, private individuals can also buy a car in installments. In this case, you must take that any additional services could increase the overall cost of the vehicle. The deal can be of little value if the extras to pay for the lease exceed the interest rate paid for the purchase at a dealership.
Car Leasing: Who Pays the Road Tax?
Car tax is one of the most expensive expenses for motorists who own a vehicle. Over the years, the legislation has changed, so it is good to clarify this point. In the case of leasing, is road tax paid by the user or by the company that owns the car?
Starting from August 2009, the car tax must be paid by whoever, at the due date for payment, turns out to be the user of the vehicle and, therefore, the lessee. Before 2009, however, the vehicle owner paid the road tax.
The tenant’s debt collection procedure is only if the user does not pay the stamp duty. The leasing company, an owner of the vehicle, has no obligation to pay, even if the user has not made the payment.
On the other hand, the periodic monthly fee generally includes the car service. Therefore, to take advantage of the maintenance scheduled for the coupon, you have to bring the vehicle to the authorized service center at the set deadlines.
Car Leasing: Who Pays the Insurance?
In addition to the costs of renting the car and a series of accessories and services, the leasing agreement can provide the RCA policy is included in the monthly installments. The monthly payment is slightly higher in this case, but the tenant can achieve substantial savings overall.
Including vehicle insurance in the leasing contract is the only possible option. Alternatively, the vehicle user can take out an insurance policy with his company if he deems it more advantageous.
The policy can also be stipulated directly by the tenant. Taking out a theft and fire policy is advisable because it would allow him to avoid paying much higher expenses to the company that owns the vehicle in case of theft or fire.
The Advantages of Leasing
When they enter into a leasing contract, companies get all the advantages of buying new cars, such as the availability of 0 km cars to manage employee mobility.
The complete leasing formulas include several services in a single installment, allowing the leasing company to avoid any worries and additional expenses.
The costs of full leasing will certainly be higher, but convenience is a more significant serenity in managing mobility. The tenant’s only concern will be driving the vehicle, while the leasing company will cover everything else, from registration to management costs.
Deductibility of Car Leasing
The advantage of leasing is most advantageous to companies in the first fiscal year, which provides for the deductibility of costs of 20%. The purchase of capital goods such as petrol or the payment of motorway toll booths is also deductible.
Another advantage is deducting the VAT at 40%, thus obtaining substantial savings. Under certain conditions, the deductibility is total.
These tax breaks represent a big incentive for companies that need a continuously operational company fleet; this is the case for companies that need van vehicles to move goods or those that need cars for employee travel.
How to Terminate a Car Leasing Contract
The leasing contract generally expires upon expiry or upon reaching a specific mileage. Some solutions provide greater flexibility for the customer, who can terminate the agreement early.
In the event of early termination, it is necessary to pay close attention to the duration of the contract in months because leasing companies will deliver a penalty before 48 months have elapsed.
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