What is Financial Lease?
Financial lease explained
Financial lease is a form of lease in which you directly become the economic owner of the vehicle. In the case of a financial lease, the leasing company acts as a lender. The vehicle serves as collateral. You can immediately dispose of the vehicle, but you are also responsible for the costs of use, road tax, insurance and maintenance as well as the economic risk during the entire period of the lease agreement.
What is finance lease?
If you cannot or do not want to pay for the purchase of a vehicle such as a passenger car or company car immediately, you can also opt for rent, hire purchase, short lease, operational lease or financial lease in addition to a loan. If you prefer to become the owner of the vehicle directly, you can consider going into a financial lease. With a financial lease, the vehicle serves as collateral, just like with a mortgage. You immediately become the economic owner of the vehicle. Because of the collateral, the so-called legal ownership is in the hands of the lease company until you have paid all costs at the end of the lease contract.
That is how it works!
You choose a company car or passenger car from a car company. You are completely free to negotiate the purchase price and any trade-in. Then contact is made with the lease company and aspects such as term, down payment and final term are discussed. These factors broadly determine the amount of the monthly installment that you must pay each month during the term of the lease contract. If you and the leasing company agree on all the conditions, a lease contract will be drawn up. As soon as this agreement is signed, the vehicle will be registered in your name and you can use it freely.
Because you are the direct economic owner of the vehicle, you are also responsible for matters such as ownership tax, maintenance and insurance. You can have that maintenance carried out entirely at your own discretion, of course, subject to the associated provisions in the lease agreement. You can also have the vehicle fitted with lettering or commercial vehicle equipment. Moreover, if you are an entrepreneur, you can make use of the same deductions as with the normal purchase of a car for your company.
The benefits of a financial lease
Because with a financial lease you are the direct economic owner of the vehicle, you have more freedom with regard to the use and maintenance of the vehicle. For example, you can have the car fitted with lettering or company car interior. Also, in contrast to operational/private lease, you are not bound to a maximum number of kilometers that you can drive per year. You can also trade in your old car and agree on a down payment and/or final installment. If you are an entrepreneur, you also have a number of advantages. Not only can you enter all costs for maintenance and use, but also the interest, which is part of the monthly lease amount, as an expense so that it is tax deductible. You can also reclaim the VAT paid and qualify for investment deduction. Moreover, in this way you can purchase a passenger car or company car without this having major consequences for the liquidity of your company. In short:
- Direct economic owner;
- More freedom with regard to use and maintenance;
- Interest and other costs are deductible for entrepreneurs;
- Interim penalty-free repayments;
- Reclaim paid VAT.
Financial lease conditions
With every contract come rights and obligations. When concluding a lease contract for financial leasing, it is important to pay close attention to the conditions. This not only stipulates the necessary maintenance and economic risk, but also the collateral. Similar to a mortgage, the vehicle serves as collateral. If you are unable to pay the monthly installment while a large part of the total debt has not yet been paid, the leasing company usually has the right to claim the vehicle.
Calculate finance lease
The amount of the monthly lease amount depends on a large number of factors. Determining factors include the amount to be financed, the current interest rate and the term of the lease agreement. The amount to be financed is determined by the purchase price minus any trade-in, down payment and final installment. If you are an entrepreneur, you can also link the term to the expected depreciation period. Your creditworthiness is also a factor that the leasing company must take into account. Because this is a form of financing, the monthly lease amount also includes an amount for the interest in addition to the repayment.