Such a different leasing.

How to understand which one to choose?

Such a different leasing.

When you think about buying a first car, you often ask yourself: does it make sense to buy a new or used car or is it best to rent? This is an important decision and you need to understand all the terms of the lease and purchase that compare them.
The car loses in price in the first three years of use, so from a financial point of view, it is better to buy a car that is not more than two years old. You can also consider leasing a car if you prefer a new vehicle, or because the monthly payments are much lower than with a new car loan.

Why is it worth to lease a car?

Car leasing is a long-term lease. You pay a fixed monthly fee for using the vehicle for a specified period and number of kilometers. As soon as the contract ends, the property is returned back to the lessor. Usually, the initial security deposit that you pay immediately is equal to the payment for six months, later you pay a fixed amount each month of rent. Monthly payments are much lower than large loan payments for a new car.
The lease is usually for 2-4 years. Its duration is up to you. But usually every few years, cars become obsolete and new ones appear with the best technologies and technical support.
At the expiration of the lease may occur several things. You can extend the rental of this car by contacting the leasing company several months before the expiration of the contract. The company at the same time can offer a discount on the monthly payment, because this car is already older than it was before.
In addition, you can give the car back. If it is in good condition and you have not exceeded the mileage limit, then no additional payments will be required.
How does car rental work?
As a rule, when you rent a car, you need to make an initial deposit. So you pay most of the rent. Then you make monthly payments for the duration of the lease. Usually, these payments are much lower than if you were buying a car. You pay only part of the cost of the car that you will use during the lease period. Most often, it is three years. It is also necessary to comply with the requirements that the lessor prescribes in the contract in order to avoid any additional financial fees at the end of the lease term.
One of the requirements is to limit mileage. Your contract will indicate how many kilometers you can travel per day or for the entire rental period without additional payment for their number if the limit is exceeded. You may also be charged additional financial fees or fines in the event of strikes or dents on the car.
You will need to follow the maintenance of the car. Although, most often, the leasing company fully covers these costs. At the end of the rental period, you will be able to return the car and take a new one or purchase it at the residual value.
It is necessary to check all rental conditions, including options for redemption and mileage, as well as maintenance requirements. Some car manufacturers themselves carry out regular scheduled maintenance at no additional cost. 

What are the positive and negative aspects of leasing?

Only you can appreciate all the advantages and disadvantages of leasing and decide whether this option suits you.
 

Benefits:

  • Low initial and monthly cost of renting a car;
  • Guarantee for the entire duration of the transaction;
  • Service and maintenance included in the price;
  • If you have your own business, a good discount is possible.

Disadvantages:

  • You do not own the car in full;
  • Limited mileage (for additional kilometers you will have to pay);
  • The rental price usually does not include tax payments;
  • The rental price may exceed your expectations.

What are the types of car leasing?
Organizations often prefer to rent cars rather than buy them. The decision is based on several factors, such as: financial benefits, necessity and lack of available funding. There are three types of leasing with different conditions that are suitable for different situations.

Usually there are several types of leasing:

  • Operational (short rental period);
  • Financial (the lessee can redeem the rental object);
  • Returnable (the organization can act as a lessor, and the lessee).

Financial leasing.

Financial leasing is often used to buy a vehicle after the lease expires. The lessee obtains ownership from the lessor.
Finance lease is when the lessor purchases an asset that leases to the lessee with the possibility of further redemption after the expiration of the lease term. In this case, all risks and benefits are received by the tenant. At the same time the landlord charges the rent for the vehicle on a monthly basis. The lessor retains ownership of the asset, but the lessee receives the exclusive right to use the vehicle, provided that they comply with the terms of the lease agreement. The tenant makes rental payments that cover the original cost of the vehicle during the initial or main rental period. There is an obligation to pay the entire rental period, and sometimes at the end of the contract. After they are paid, the landlord returns all his funds.
The client undertakes to pay the rent during this period.
At the end of the lease, several scenarios are possible:

  • The vehicle is returned to the lessor for sale;
  • The client enters the secondary lease period;
  • The lessee sells the vehicle to a third party who acts on behalf of the lessor.

When selling a car to the client may be given a discount on the rental. If the car remains for the lessor, then secondary rental is possible. At the same time the price will be much lower than the first time.

The advantages of financial leasing:

  1. The cost of the car is paid in monthly installments, not in large advances.
  2. The cost is distributed for a certain period of time and paid in monthly installments that do not increase, but are fixed, even if bank interest rises.
  3. Customers have the opportunity to use a new vehicle with full technical support.
  4. Tax rates are paid from the rent, not from the purchase price.
  5. Equal monthly payments.
  6. Minimum capital costs.
  7. The rent can be compensated at the expense of the company.
  8. Regular consultations and technical support.

Disadvantages of financial leasing:

  1. Unpaid leasing may adversely affect the rating of a company or a lessee as a legal entity.
  2. The object is not protected if the company becomes bankrupt.
  3. The company is the legal owner of the object.
  4. In case of non-payment - the car will be returned to the lessor and all payments until this point will not be returned.
  5. Operational risk associated with the vehicle.
  6. The lessor does not cover full car insurance.

The main differences from the rental:

 

  • The car is specially acquired by the company for leasing to the lessee;
  • The lessee can redeem the vehicle before the end of the lease term;
  • All risks associated with the leased asset and the tenant is responsible for its safety and security;
  • The tenant has the right to terminate the contract before the end of the lease term, while he bears all losses;
  • The lease term is close to the useful life of the vehicle.

Operational leasing.

Operational leasing represents the financing of a vehicle for the term of its lease, which is usually less than the lifetime of the object itself. The lessee usually returns the vehicle to the lessor at the end of the lease term without any additional obligations.
Operational leasing is a contract that allows you to use a vehicle, but does not transfer ownership of it. Thus, the lessee is exempt from all risks and benefits that are associated with the right of ownership. Usually the lessor considers the residual value. It is predicted at the beginning of the lease. The client receives the vehicle for temporary use for a certain agreed period in exchange for monthly rental payments. These payments do not cover the full cost of the property, as in the case of a financial lease. Sometimes this type of rental includes other services, including vehicle maintenance.
The ownership of the object remains with the lessor and the car will be returned at the end of the rental company or re-rented at a fair market price, which will be relevant at that time.
Operational leasing works in the same way as a lease agreement. You only pay for the use of the vehicle. Tax benefits can be obtained from this type of lease, because the rental price is not taxed. Another advantage is that the car is returned to the lessor at the end of the lease term. There are no resale risks.
Operational leasing is particularly effective for expensive cars, special equipment or tow trucks. The lease will be based on the cost of the car for the required period, and as a result, may be related to the income that the vehicle generates. Unlike a financial lease, it does not refund the full value of the property, but the company protects you from this risk by guaranteeing the residual value at the end of the lease term. Operating leases are not as popular as finance leases, often due to the limited number of companies that offer them.

There are many advantages of operational leasing:

  • Greater flexibility for companies (they can often change the vehicle);
  • It is easier to keep records of operating leases;
  • Rental payments are taxable;
  • There is no risk of obsolescence of property, as it does not transfer to the right of ownership;
  • Easier to agree on the final cost of the car.
     
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