Buying A Car: Finance Options for Individuals and Companies

Buying A Car Finance Options for Individuals and Companies

You can buy a car on finance in different ways – using leasing, a loan, or in cash. It is not always beneficial for small and large companies to attract significant investments for the purchase – this entails an outflow of funds and leads to cash gaps. The main argument in favor of choosing debt financing is the preservation of working capital.

It is inappropriate to assess the direct economic benefits of direct or debt financing since buying a car with cash will always be cheaper. But with the further exploitation of the property, leasing and auto loans can be considered the most cost-effective ways to purchase a car.

Car Buying Options for Business: Cash, Lease or Loan?

Cash Loan Leasing
Simplicity and availability of the financing option Available only if you pay a full amount at once A bank loan is inferior to leasing in speed and in the number of documents Consideration of leasing projects is loyal – the specifics of the client’s business and cash flows are taken into account. The issue of the leased asset is possible within 3 working days from the date of submission of the required set of documents
Initial investment The property is purchased at full cost Small funds are attracted Small funds are attracted
Property rights The company owns the property The owner is a client of the bank, but the property will serve as collateral When paying lease payments, the owner of the property is the leasing company – this can significantly reduce the client’s tax burden
VAT refund VAT is refunded on the original value of the property VAT is refunded on the original value of the property VAT is refunded in full for the entire lease agreement (all lease payments + advance payment)
Property tax Fixed assets are displayed on account 01 – therefore, property tax is transferred Fixed assets are displayed on account 01 – therefore, property tax is transferred If the property is on the balance sheet of the leasing company, the client does not pay property tax. If the property is reflected in the fixed assets of the lessee, the tax is paid in a smaller amount
Income tax Lease payments are attributed to the cost price, which reduces the taxable base for income tax
Accelerated depreciation In general order In general order The only legal way to write off property 3 times faster is, therefore, to pay less property tax
Work with providers The company independently searches for property and chooses a supplier, solves issues of supply and concludes a purchase and sale agreement The company receives funds from the bank, then acquires the property. Search for property, seller, negotiation and paperwork are carried out independently The leasing company provides the lessee with active assistance in the process of searching for property and choosing a reliable supplier, takes over negotiations with the seller, and regulates delivery issues
Property purchase discounts Car dealerships and equipment suppliers, as a rule, offer discounts on the property to legal entities on a general basis, most often on seasonal promotions Car dealerships and equipment suppliers, as a rule, offer discounts on the property to legal entities on a general basis, most often on seasonal promotions The client can lease a car or equipment with a discount of up to 10% of the original cost – this is due to the fact that the leasing company buys property in large quantities and systematically works with suppliers and manufacturers
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Buying a car on lease or on loan? A guide for individuals

1. The period for which you buy a car

Usually, you know and consciously plan for how long the car will be bought. More often, this is not your first car – and based on previous experience, you will understand what “ownership period” is right for you. Also, at the same time, you take into account the factors of growth of your income (and the purchase of a more expensive car), the birth of your children (with the need for a more spacious car), etc.

A car loan is good if you buy a car permanently or for a long term – that is, you plan to use it for about 4-5 years. Then, subject to the subsequent successful (!) resale, a car loan will be more profitable than leasing.

Leasing for individuals is optimal when the planned period of car ownership ranges from 1 to 3 years, as it makes it possible to use a car with monthly payments that will be 2-3 times less than with a car loan for a similar period. And at the end of the lease, you can easily replace the car with a new one.

2. What brand of a car are you going to buy?

This paragraph will help you answer the previous question – about the planned duration of ownership. The statistics are inexorable and incorruptible: the brands of some models change faster than others.

If you buy an inexpensive car, then a car loan is best for you. But when buying a premium class car (Mercedes, BMW, Audi) is more profitable to use leasing.

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3. How much free time do you usually have?

The time you spend buying a car on loan and on a lease is usually the same. In both cases, this will require a certain set of documents (usually an ID and a driver’s license) and make a decision on the application within 15 minutes. A completely different matter is the time you have to spend on selling an old car when after paying off a loan or lease payments you decide to replace it with a new one. And here we propose to evaluate now how much free time you have. Placing an ad and a photo, round-the-clock calls that will pursue you after the sale of a car, endless screenings, repeating the same text and asking for a discount – all this takes a huge amount of time, annoys, interferes with work, and deprives you of days off. If you do not have enough spare time, it is strange to expect that you will suddenly have it in 3 years (4, 5, 6, etc. years).

If you have enough time for this process, then a car loan is your choice.

Otherwise, if you are a busy person or you have interesting hobbies, choose leasing for individuals. In 2-3 years, you simply return the old car to the leasing company and change to a new one.

4. What is your monthly income?

This question must be answered as honestly as possible in order to realistically assess whether you can afford exactly the car you want.

In a car loan, the monthly payments are quite high. If you are willing to make such payments for the desired car, you will have no problem. In addition, you can reduce the size of payments by taking out a longer-term loan (for example, 5 years). However, the total cost of the loan agreement for the entire period will increase significantly. Or you can moderate your appetite and buy a car of a lower class or another brand. In general, there are options, but they are not the most pleasant.

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In leasing, monthly payments are 2-3 times less, so you can definitely buy the car you like (or even a class of higher / improved equipment) – or use the freed up money for personal purposes. It’s up to you to decide.

5. Do you like gambling?

The answer to this question will best demonstrate whether you are ready to sell your car yourself and whether it will give you pleasure.

If you bought a car on loan and decided to change it for a new one, you will face a not very pleasant procedure for selling a used car. And here you need to take into account several factors, as well as have good forecasting skills.

And when buying a car on a lease, all these risks are assumed by the leasing company. You do not need to spend time on this, take risks, try on the role of a fortune teller or a great expert in car prices.

In addition, at the end of the lease term, you have several options: you can return the car, buy it back, or continue using it by extending the contract.


So we have considered all those factors that affect the way to finance a car. In conclusion, we suggest that you carry out a “self-diagnosis” – and decide whether leasing or a car loan is right for you.

Category: General