Vehicle Financing: Loan or Leasing?

If we have decided which vehicle to buy, we are not at the end of the story: do we also need to know what we are paying for? The car or car. Here are some helpful tips for analyzing possible alternatives to financing commercial vehicle purchase:

One of the most important questions is the amount of the advance , how much money do we have for the purchase? In the case of new and used assets, vehicle financing companies require a minimum own resource (advance) of at least 20% of the purchase price. However, keep in mind that the higher the down payment, the better the car financing conditions, life-time costs and interest charges, and the preliminary creditworthiness test.


The next issue to be decided is the form of vehicle financing

car financing

Under normal circumstances, there are three options for an individual, private or corporate business: bank credit, financial leasing, and operating leasing.

One of the means of financing investments is bank credit . It can be used by those who meet the requirements of a bank credit assessment and can provide adequate security. This is often a more flexible and cheaper solution for larger companies than a leasing deal. However, in the case of small and medium-sized businesses, leasing may not only be a simpler but also cheaper solution.


Financial leasing

Basically a legal acquisition of property, where the lessee and the lessor determine the transfer of ownership of the object of lease in the form specified in the contract. The lessee capitalizes the leasing asset among its assets and charges the interest on the lease payment as well as amortization (depreciation) as an expense.


Operating leases

Operating leases

These are contracts of a kind in which the parties do not generally have ownership of the leased item and are usually settled after the term. Fees paid during the term shall be fully expensed. In this form, there is also a residual value to be taken into consideration if the customer wishes to acquire ownership of the vehicle. However, this form of financing arrangements is disappearing and is not highly preferred by leasing companies.

When choosing the right financing method (car lease or car loan), we also have to decide in which currency the transaction should be recorded. FX-based financing may be significantly more favorable than forint-based financing, but exchange rate risk, as evidenced by developments in recent months, may cause some unpleasant surprises. Nonetheless, many people take on currency risk because they feel that with lower interest rates some risk is still present.


Choose the financing company carefully

Choose the financing company carefully

I recommend specialist leasing companies from leading banks, as these tend to provide the best financing offers, but here you should expect the most comprehensive credit assessment. However, most vehicle dealers / credit brokers are also affiliated with one or more financing companies, whose offer is also worth considering.

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