Buying a rental car is a much-used solution that is used by both individuals and companies. Currently, there are two main forms of leasing: financial and operational.
Financial leasing is the most common form and will be referred to in later pages. These finances resemble a bank credit. The customer (also called the lessee) purchases the car through a loan, which he then repays in installments.
During the contract, the owner of the car is the leasing company, and it is only after the end of the contract that the client becomes the owner. The risks and benefits associated with the ownership right pass on the user from the moment of signing the contract.
Operational leasing is a less-used solution. This type of contract resembles a lease.
Therefore, the monthly rate – called rent – will not be calculated by taking into account an interest rate (as it happens on loans), but depending on the degree of depreciation of the car over the contract period and the profit margin of the leasing company .
In the case of operational leasing, the customer will not become the owner of the car at the end of the contract. If he wants to buy the car, he will have to negotiate a price at the end of the contract with the leasing company as if he were buying the car directly from the second-hand market.
Financial Leasing vs. Operating Leasing.
There are all sorts of discussions on this, but until one other operational leasing is a better choice than the financial one. From my point of view, no lease is good, especially as a physical person.
Financial leasing is the most common, both for individuals and companies. Here you have the possibility that after the end of the contract, after the final residual rate (if any), you get into possession of the car. Everything that appears to be done to the car is your job.
Operational leasing is, say, more and more common. At the end of the contract you do not have to buy the car, but you can choose for another that will be in your business. In fact, you pay for renting the car, and all the expenses are borne by the leasing company, you just pay the monthly rent.
There are several advantages to using operating leases, and they raise some of the predictability that helps the company’s cash flow, the firm’s leverage ratio is not affected, capital savings, avoidance of residual risk, coverage of needs, and more. I did not intend to discuss too much here, but I assure you that you have the necessary information to see that the operational leasing is more efficient than the financial leasing.
If we talk about a company, it depends a lot on the car park, because if you have 5 cars this can not be called a park, and from 20-30 cars up is something else. If we talk about individuals, very few have turned to this option, generally companies being the ones who use the solution.
A great loss of money and a solution.
And that’s the way it is. A new car over a 3-4 year period sounds good, is not it? Let’s think a little and look at the costs involved. I was saying earlier that everything moves away from the mentality, that is, the owner, accompanied by your beliefs and values that you have about money.
If you are leasing on a continuous basis and every time you end up with the contractual period, you are in a new practical way, you will never be the owner of the law, clearly, writing black on white. You may not realize, but what happens is that you will make monthly payments just like a medium and long term debt.
Some people take 30-year mortgage loans, and you take your car for 30 years or maybe more! Do you know what I mean? You screw up your head when it does not hurt, and you lose a lot of money on your way that could be invested differently, for example in activities to help build assets, that is, that type of money that pockets your money.
Where is the loss of money I’m telling you right now. Any car that you will have if it is normally maintained and exploited, that is revisions, make sure you do not force it, do not put it through all the miseries of roads and other things of its kind, it will guarantee you a minimum of 10 years.
If you are leasing, you pay rates for 10 years. Let me also give you a common sense, studied and recommended solution, but not before specifying that the best solution for the purchase of goods or valuables is to buy cash. Undoubtedly. What you do if you do not have it is very simple, you have to squeeze them no matter how long it takes. That will discipline you, you will learn what it means to budget, to understand the flow of money and to optimize it, to become practically a better manager of personal money.
You know well that I still say that it is extremely important to understand the difference between necessity and desire. So if the car is a necessity and you have no money at all or maybe a small amount for an advance, the recommendation goes to a credit with a maximum of 3 years. The amount you get will give you the budget that you have for your car, so that’s the car you allow now. If you get a 3,000-euro car that’s it, if you’re up to 10,000 euros, that’s it. 3-year credit versus 10-year leasing, you earn 7 years of interest rates and rates, a truth that no leasing company will tell you.
And by the way, when you make the credit calculation at the bank, it would be good to go without any other credit in your portfolio. That is, the above recommendation is supported only if you do not have any other existing credit. Otherwise, increasing your indebtedness or your family’s debt to purchase a car, even if necessary, would be a stupid thing from my point of view.
Any credit over 36 months (3 years) is a loss of money. A car is a horrible “investment”, because the moment you got to the wheel, most likely 20% of its value was lost. The same happens with any improvements made during the course. I’ve seen all sorts of tunings that are more of a bad taste and useless. You will not recover anything on sale. Exceptions are made by luxury cars or those tuned at the level of art. The rest are beasts that lose their value every day. You understand?
How to buy a car – in leasing or with money down
The price of a new car today can be a little intimidating. However, with a well-priced payment program and low interest rates (if you are looking for credits), it’s easier to buy a new car than you would think. On the other hand, many drivers prefer to opt for leasing instead of buying a car down with money. Leasing has become increasingly popular over the past ten years.
Although leasing may be beneficial in terms of tax deductions for a company that opts for this financial instrument, there are several pros and cons that you need to consider when purchasing a car for your personal use:
Advantages to Buying a Car with cash money:
• It is your property, which means the car is on your name and you can customize it or change it as you like.
• There are no mileage limits or other restrictions.
• Incentives given by the manufacturer for new cars can make the purchase more accessible.
• You can sell your car whenever you want it or give it back when you buy a new one. Although the car will depreciate in value, you still have a pledged asset.
Disadvantages to buy a car with cash money:
• Repairs are your responsibility, which means that they are invoiced on your behalf once the car leaves the warranty.
• Cars are getting old and depreciating in value.
Advantages for car leasing:
• Monthly payments are usually lower, allowing money to be invested elsewhere.
• You can get a tax deduction if the car is purchased by a legal person.
Disadvantages for car leasing:
• You are not entitled to ownership of the car until the end of the financing period.
• It may be difficult and / or costly to terminate the lease.
When you make a car lease, it’s essentially about renting a car for a longer period of time. In the short term, such as a year or two, leasing can be cost-effective. After that, if you do not use the lease on the company, the longer the contract is, the more you lose out of the financial advantage.
In the long run, it is more convenient to buy a car with cash money.
If you opt for leasing, make sure you carefully read the lease and look for additional costs.
If you buy the car, make sure you are fully documented in terms of price and standard features. Do not let yourself be convinced to pay extra for the many extra options you do not need in the end.