What is financial leasing?
Financial lease is a form of business financing where you buy a car with a fixed loan through the leasing company. You are economic owner from the start and pay an agreed amount each month. You arrange maintenance, insurance and tax yourself. The car is part of your business assets and falls under the rules for business assets, depreciation and investment deductions. At the end of the contract, the car is yours as soon as the financing is fully repaid.
How does financial leasing work?
Financial lease works by spreading the purchase of the car over several years so that you pay monthly repayments and interest. You pay the VAT on the purchase in advance and can reclaim it if you are liable for VAT. You choose the term and any final instalment yourself, giving you control over the monthly costs. The car remains available in your company and you decide how to use it within your company.
Property
You are economic owner from the start. The car is on your balance sheet and is part of your business assets. You assume all financial liabilities and risks of change in value.
Calculate your financial lease
The amount per month consists of repayment and interest. The amount depends on the purchase price, interest rate, term and final instalment. You pay the VAT at the start and can reclaim it if you charge VAT to customers.
Financial lease without down payment
You can lease without contributing your own money. You then finance the full purchase price. Often, you only pay VAT upfront. This keeps your available funds but gives higher monthly costs.
Business financial lease
Business financial lease is attractive to many self-employed people because you can use a car without making a big investment. The car is part of your business, allowing you to take advantage of tax benefits. You decide how to use and equip the car. You are responsible for maintenance and insurance and process the car in your administration through depreciation and expenses. The business benefits often outweigh the obligations that come with the loan.
Advantages
This is because financial leasing gives leeway in your finances and tax advantages for your business. Think about:
- You don't have to pay for the purchase in one go
- You have economic ownership and keep control of the car
- You can deduct interest and car expenses
- You write off the car as an asset
- You can apply investment deductions in some cases
Deductible
You can deduct interest, depreciation and running costs from your profit. This reduces your tax burden. Maintenance and insurance are also deductible business expenses.
Bus leasing
A van sometimes has tax advantages. You can take advantage of a lower motor vehicle tax rate. For business-only use, you can submit a statement that means you don't have to keep track of trips.
Cons
The disadvantages of financial leasing are mainly about financial obligations and tax implications. You need to weigh these points carefully beforehand.
- You have fixed monthly costs during the term
- You bear the risk of loss of value
- You arrange maintenance and insurance yourself
- You have more extensive administration
Addition
If you drive more than 500 kilometres privately, the following applies addition. The percentage is calculated on the catalogue value. In case of little private use, you can avoid additional taxable benefit with a comprehensive trip record.
Financial lease for private individuals
Financial lease can also be used privately. You pay for the car in instalments and become the owner after paying it off. It works like hire purchase where you bear all the costs yourself. You have no fixed mileage arrangements and you do not return the car after the contract. The obligations are similar to a loan so you have to look carefully to see if this suits your financial situation.
Advantages
The benefits of private financial leasing are mainly about ease of payment and ownership.
- You don't have to pay a large amount upfront
- You end up owning the car
- You have no mileage restrictions
Cons
The disadvantages mainly relate to costs and creditworthiness.
- You have higher monthly costs than with a private lease
- You are responsible for maintenance and repairs
- The loan counts towards credit registration
Mileage allowance
If you drive the car on a business basis, you must have a conclusive trip registration tracking. You may then only deduct or declare business kilometres at €0.23 per kilometre, which is the kilometre allowance. Other car expenses are not deductible because the car is privately owned.
Difference between financial lease and operational lease
Financial lease is similar to buying in instalments while operational lease resembles renting. With financial leasing, you become the economic owner and arrange everything yourself. With operational leasing, the leasing company remains the owner. You pay a fixed amount that often includes maintenance and insurance. At the end, you hand in the car. The choice depends on your preference for ownership, cost and service.
