There are many types of financing to acquire a car. Buying the vehicle your business needs with a conventional loan is pretty straightforward. You borrow money from a lending institution and make monthly payments over several years. A portion of each payment will be engaging, and the rest is the car’s actual value. As you pay the installments, you accumulate money until the car is all yours at the end of the loan. You can keep it as long as you want and modify it as you wish.
In recent years, however, leasing a vehicle has become a mainstream alternative to buying. Commercial vehicle leasing is one of the most popular options for companies, although some banks also offer individuals this possibility.
Commercial vehicle leasing is basically a lease contract in which the asset, in this case, a car, is paid for during a previously agreed term of installments. The monthly payments are generally lower because you are not paying any principal. Instead, you are only borrowing and repaying the value that the car loses in value over the time you use it, plus finance charges, of course.
When the lessee pays all the installments, the total value of the asset is amortized. It usually lasts two years, although it can last up to four years (48 months). And at the end of the contract, the lessee can become the vehicle owner if he/she pays the last installment, which is equivalent to one more installment of the contract.
There are two other options, although they may be less economical than the previous one: the lessee can turn in the car at the end of the contract and remain debt-free, or he can renew the contract again.
The operation of commercial vehicle leasing is simple and easy. However, some characteristics of this type of financing differ from other types of auto loans.
Most of the advantages of commercial vehicle leasing are associated with companies or the self-employed. First of all, the finance company or bank purchases the asset in its own name, so it does not appear as an asset of the company or individual, nor does the loan appear in the system since it is a lease. Commercial vehicle leasing operations are not taxed, which is the case with other automotive financing types. Besides, unlike different credit types, if the installments are not paid, the vehicle ceases to be leased and returns to the leasing company or bank.
Another advantage of commercial vehicle leasing is that, depending on the financial institution, financing the entire asset without having to pay any installments is possible. However, the most common is to ask for a 20% installment, which is usually the minimum required by most financial institutions.
Fixed or flexible installments can also be chosen, and the vehicle is insured by the financial institution during the entire leasing period.
Finally, the rates are very competitive concerning other financing, and they are also considered an expense. Therefore, companies and self-employed persons can declare these payments as corporate expenses and thus reduce their taxable income.