What is Financial Lease?
Financial lease explained
Financial lease is a form of lease in which you immediately become the economic owner of the vehicle. The leasing company acts as a lender in financial leasing. The vehicle serves as collateral. You have immediate access to the vehicle, but you are also responsible for the costs of use, road tax, insurance and maintenance as well as the economic risk for the entire period of the lease agreement.
What is financial leasing?
If you cannot or do not want to immediately pay for the purchase of a vehicle such as a passenger car or commercial vehicle, in addition to a loan, you can also opt for renting, hire purchase, short lease, operational lease or financial lease. If you would prefer to become the immediate owner of the vehicle, you can consider taking out a financial lease. With a financial lease, the vehicle serves as collateral, just like with a mortgage. You are then immediately the economic owner of the vehicle. Because of the collateral, the so-called legal ownership is in the hands of the leasing 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 possible trade-in. Contact is then made with the leasing company and aspects such as duration, down payment and final term are discussed. These factors broadly determine the amount of the monthly installment that you must pay every month during the term of the lease contract. If you and the leasing company agree on all conditions, a lease contract will be drawn up. Once this agreement has been signed, the vehicle will be registered in your name and you can dispose of 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 this 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 use the same deductions as for the normal purchase of a car for your company.
The benefits of financial leasing
Because with financial leasing 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 vehicle furnishings. Also, unlike operational/private lease, you are not limited to a maximum number of kilometers 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. You can include not only all maintenance and usage costs, but also the interest, which is part of the monthly lease amount, as a cost item so that it is tax deductible. You can also reclaim the VAT paid and qualify for investment deductions. 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;
- Early repayment without penalty;
- Reclaim paid VAT.
Financial lease conditions
Every contract comes with rights and obligations. When concluding a lease contract for financial leasing, it is important to pay close attention to the conditions. This not only determines the necessary aspects of maintenance and economic risk, but also about the collateral. Just like with a mortgage, the vehicle serves as collateral. If you could no longer 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 financial 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 closing term. 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 it is a form of financing, the monthly lease amount also includes an amount for interest in addition to the repayment.