In 2020, around 428k new cars were sold in Poland, and most of them got purchased via leasing, not with cash (data by Samar – Automotive Market Research Institute). The leasing/cash ratio is more balanced with second-hand cars, however, a significant amount of cash deals is financed via bank loans anyway. The above confirms the long-term trend on the Polish market as more and more buyers decide to use outside financing rather than their savings for the car purchase. One of the reasons for that is that the market offers plenty of options and most of the customers can find a solution that matches their needs.

To help you find the type of financing we prepared a comparison of the three of the currently most popular options – cash loan, operational leasing, and long-term rental. The main differences happen in the application process, ownership status, taxation, the structure of the cost, and the maximum age of the car/product length, so we will focus on these issues.

Application process.

The cash loan is obtained directly at the bank and is subject to standard bank procedures. When applying you request only the given amount of money without stating its purpose. Due to that, the bank analyzes only your financial situation and decides if they can offer the amount you requested, so you will be asked to provide some financial documents, whether salary confirmation or your company’s accounting sheets.

This process might be simplified when it comes to leasing or rental. In most cases, when you buy or rent a car – instead of asking for financial documentation, the leasing/rental company will rather check your score in credit databases like BIK, BIG InfoMonitor, or KRD, and other of that sort. When you buy a second-hand or new car with a value of over 150k zlotys, the process similar to a cash loan might appear, as financing such vehicles poses more risk for the leasing company. Lastly, the decision on what path to follow will always be up to the analyst assigned to your case.

Ownership status.

When buying a car via cash loan, you become the sole owner of the vehicle, as the bank only provides the money and does not ask for what it’s needed. In other words, you can manage the car freely and without any restrictions that occur in leasing or rental.

The leasing company will remain the owner of the car until the liability is repaid fully. Due to that, you cannot manage the car like you could with a cash loan. You will need to service or insure it as per the leasing company criteria. You cannot make any permanent changes without permission or take the vehicle abroad without first informing the leasing company and getting their approval. Also, all the users of the car must be acknowledged and agreed upon by the leasing company. The same applies to rental, however, issues like service and insurance can be part of the deal as the responsibility of the rental company.

Taxation.

Please keep in mind that subject as comprehensive as taxation is best to discuss with a professional accountant. Nevertheless, we are happy to point out the general rules connected to the products we analyze.

As when buying via cash loan you become the sole owner of the car – you can register it as your company’s possession, which will give you a tax premium due to depreciation. It does not apply to operational leasing or rental. On the other hand, you can include only the interest part of the loan’s monthly installment in your company’s cost.

In leasing or rental, the monthly payment can be considered a cost of your company in full, but different rules apply whether you are a VAT taxpayer, or you use the vehicle for business purposes only, etc. Moreover, in 2019 the government decided that leasing or rental costs for a car with a value exceeding 150k zlotys (or 225k for an electric car), cannot be fully included in your company’s financial sheet. On the other hand, the upfront for the leasing or rental can be considered the business cost, which gives more opportunities for tax optimization. As advised previously, we believe these issues should be discussed and thoroughly analyzed with your accountant.

The structure of the cost.

Cash loan covers only the cost of the vehicle purchase, other expenses related to car ownership – like insurance or service – should be paid separately. Of course, you can apply for a loan higher than the cost of the vehicle itself, as the bank is not interested in the allocation of the money it lends you in this option and will lend as much as your creditworthiness allows. However, please keep in mind that the interest rate for the cash loan nowadays starts from 7% per year. On the other hand, with a cash loan, you can buy a car without VAT, which is not the case with operational leasing or rental. There is another type of leasing, a kind of hybrid, called financial leasing, used by company owners buying a second-hand car from a private seller without VAT, but as it is not one of the most popular products, we do not analyze it here.

When buying a car with leasing, insurance, service, and other maintenance costs are also covered by the customer, unless negotiated otherwise. The difference from the cash loan is that the leasing company will provide you with strict requirements about OC/AC, service, etc. Another cost that does occur in the leasing is the upfront, which you have to pay in most cases, and usually, it starts from 5-10%. On the other side, leasing offers the option of a higher last installment, which can be set at up to 35% of the car value, used to lower the monthly burden throughout the leasing period. Lastly, the interest rate is lower than the loan – it can be even around 1% per year.

The structure of the cost seems least complicated with the rental, as usually, you can have it all included in the monthly payment, insurance, service, even storage of the winter tires. On top of that, you might pay an extra fee, if you will exceed the yearly km limit determined in the agreement. Rental also might mean upfront – the more upfront you pay the lower the monthly payment would be. As you are not buying the car, but renting it, it is not easy to assess the yearly cost of the capital. You are paying for using the vehicle or for the value it is losing while used, not for obtaining it. Looking at the market, the 36-month deals for the small cars like Fiat500 without upfront and insurance included start from around 600 zlotys net per month, while in the same scenario for Mercedes E-class you should be prepared for circa 2300 net monthly.

Maximum age of the car/product length.

The cash loan has no limitations in regard to the car age, and for the reasons, we explained in the previous sections. The maximum length of the loan itself, currently, is up to 10 years (12 in specific cases).

The construction of the leasing is different. The main rule is that the age of the car and period of the leasing cannot exceed 8, 10, or 12 years when combined (depending on the leasing company regulations). It can be altered in some cases, like a specialistic or historical car. This rule applies to second-hand vehicles. The leasing for a new one in most cases cannot be longer than seven years.

The long-term rental is made specifically for new cars, but few companies do offer second-hand options. The period of the rental usually goes up to 5 years.

We hope you find this article helpful. Feel welcome to query us for more details.

Loan-brokers.pl Team

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