Cash loan or leasing?

March 29, 2015 Buying a car, whether used or straight from the salon, belongs to this group of expenses, which we can usually cover only using an external source of financing. We usually try to make up for the lack of a sufficient amount by reaching for a cash loan. However, there is another way to get the right amount. Car leasing, because we are talking about it here, should to a large extent interest entrepreneurs who intend to enlarge the car fleet or purchase the first company car. What distinguishes a cash loan from leasing and what to consider when deciding which solution will be more profitable? 

Cash loan – the first option

Cash loan - the first option

An argument for cash loans is that it is one of those financial products that do not involve a number of formalities, such as a car loan. More and more banks only require having an ID card, a stable source of income and a good credit history. An important argument is the record low NBP interest rates, which significantly reduce the cost of obtaining even large sums. The advantage of a cash loan is that the money obtained under it can be used not only for the main purpose, but also to finance another need. For example, by applying for an amount higher than the value of the vehicle, you can cover the remaining funds for installing a gas installation in your car, but you might as well buy home appliances or electronics. It is worth reaching for a cash loan when we think about bringing a car from abroad.

Additional cash loan costs

Additional cash loan costs

However, it is worth noting that the smaller number of certificates and other documents that must be presented to the bank at the time of applying for a loan translates into higher costs related to securing the liability – mainly all types of insurance, e.g. life insurance, etc. On commissions, setting up a bank account and other fees not to mention. In addition, when deciding on a loan, you must remember that any problems with timely repayment will have a negative impact on your credit history, almost automatically closing the possibility of obtaining another benefit.

Car leasing – option number 2

Car leasing - option number 2

When we talk about car leasing, we mean the lending of the vehicle by the leasing company and taking benefits from the user from this transaction. They have the form of rent regulated according to the leasing contract schedule – usually repayment is monthly. There are two forms to choose from – financial leasing, which is synonymous with the car becoming the property of the person leasing it (after paying off the obligation) and operational leasing, which after the contract has expired allows you to purchase the leased item at a certain price.

Advantages of car leasing

The biggest advantage of car leasing is that it usually involves a lower interest rate than a cash loan, which makes it a more economical solution. When running a business and thinking about expanding the company’s car fleet or buying the first vehicle for purely business purposes, it is best to opt for leasing. This is a better option than credit, not only because of saving time and money, but also not reducing creditworthiness. This is important because when you run a business, you can always need extra money to run your business. In addition, leasing involves tax benefits (e.g. lower income tax in the case of business operations), and all the formalities related to the registration of the car are arranged by the leasing company. On the side of the pros arising from this form of financing is also the fact that you can adapt e.g. the repayment schedule to the dates of obtaining the income by the lessee. For example, when running a seasonal company, you can subordinate repayment so that the largest portion falls on the period of highest profits. With the help of car leasing, you can buy a car from abroad, however, this is usually associated with a number of formalities, including translating documents indicated by the Communication Department appropriate for our place of residence or restrictions on the age of the vehicle (the leasing period is added to the vehicle’s age).

The final decision on the form of financing the purchase of a car should be made after analyzing not only which solution will be cheaper, but also which one will save time and will be better suited to our current financial situation.