LOAN, LEASING OR RENTING?
Many companies ask you about the best way to finance the purchase of vehicles; are they interested in leasing or is it better to use a traditional loan or leasing?
Which is better: leasing or renting?
A leasing contract is usually more flexible and allows for the acquisition of the asset at the end of the contract, while a renting contract offers greater simplicity and the possibility of including additional services in the monthly payment.
In addition, leasing may involve a higher initial investment and more responsibility for the maintenance of the asset, while renting usually includes maintenance and repair services in the contract.
Also, leasing may offer tax advantages as it is considered an investment, whereas renting is treated more as an operating expense.
Let’s say you are an entrepreneur and you need a vehicle for your business. This is where two popular options come into play: renting and leasing.
Leasing would be like renting a car on a long-term basis, where you pay a monthly fee and the company takes care of all the costs associated with the vehicle, such as insurance, maintenance and repairs.
On the other hand, leasing would be more like a long-term loan, where at the end of the contract you have the option to buy the vehicle for a residual value.
Both options have their advantages and disadvantages, and it is important to understand which one best suits your needs and budget.
Imagine you decide to opt for leasing for your business.
This means that you don’t have to worry about any unforeseen issues that may arise with the vehicle, as the leasing company will take care of everything.
On the other hand, if you choose leasing, you will have the possibility of purchasing the vehicle at the end of the contract for a previously established value.
It is important to bear in mind that in leasing, at the end of the contract, you will have to decide whether you want to keep the vehicle or return it.
In summary, both leasing and renting are attractive options for obtaining a vehicle for your business, each with its own characteristics and benefits.
Leasing offers you the convenience and peace of mind of not having to worry about additional expenses, while leasing gives you the possibility of purchasing the vehicle at the end of the contract.
Before making a decision, it is essential to analyse your needs and assess which of these options best suits your particular situation.
LOAN OR LEASING?
Loan
Financial aspects of the loan
The simplest option is the loan: the bank makes the money available to the company to pay the dealer, who will issue the corresponding invoice.
If the business is in an activity where VAT is deductible, it is advisable to finance the price without VAT, as it will be able to recover the tax in its regular returns.
The bank will report this operation to the Central Credit Register (CIRBE), so that this indebtedness will be “visible” to other financial institutions.
Loan accounting
The vehicles acquired will appear on the balance sheet as tangible fixed assets for their acquisition price (their counterpart on the liabilities side will be the debt with the bank). And for tax purposes, the interest on the loan and the accounting depreciation will be deductible.
If the company is small (in general, if in the previous year it had a turnover of less than 10 million euros) it may also apply tax incentives: it may accelerate depreciation or even apply the freedom of depreciation for job creation (in the latter case, provided that it increases its workforce in the terms provided for by law).
Leasing
Differences and similarities
With leasing, the company will not be the legal owner of the vehicle: it will belong to the leasing company, which will lease it in exchange for a monthly payment plus VAT.
To become the legal owner, the company must exercise the purchase option attached to the lease, and pay the residual value of the vehicle (which is usually an additional fee).
However, in accounting and economic terms, leasing is virtually identical to a loan: the vehicle will appear on the balance sheet as a tangible fixed asset (and the debt will appear on the liabilities side). The bank will also report the debt to the CIRBE.
For accounting purposes, the economic conditions of the operation take precedence:
When acquiring assets, your company often resorts to leasing finance. However, if you are a small company, are you aware that in certain cases it may be more convenient to take out a loan?
WHAT IS THE MOST INTERESTING FINANCING?
Leasing
When your company needs to acquire an asset and needs to finance its purchase, you always turn to leasing because of the tax advantages it offers.
This form of financing allows you to depreciate the asset more quickly and thus defer taxation for corporate income tax purposes, thus obtaining financial savings. In general:
On the one hand, as with loans, your company can deduct the interest portion of the leasing instalments as an expense.
You can also deduct the cost recovery part (i.e. repayment of the principal), up to a limit of three times the maximum depreciation rate of the asset.
This limit is twice the maximum depreciation coefficient in the case of companies that are not small.
Accelerated depreciation for SMEs
Well, do not act out of inertia: check for each asset whether it is really in your interest to finance it by leasing or whether it would be better to take out a loan.
If you are acquiring new assets, the “double depreciation” incentive (which allows you to apply the maximum depreciation rate of tables multiplied by 2) may be more advantageous than the leasing scheme.
Depending on the repayment term.
In general, “double depreciation” will be more beneficial in the case of new assets which, when the incentive is applied, will be fiscally depreciated before the end of the leasing term.
Thus, the higher the depreciation rate of the asset and the longer the repayment term of the money lent by the bank, the more likely it is that a loan will be more beneficial than a lease.
Example loan or leasing
Vehicles
Your small company purchases new vehicles for 200,000 euros with a maximum depreciation coefficient of 16%.
See what tax depreciation you will be able to deduct each year and what you will not have to pay in your Corporation Tax if you finance the purchase at an interest rate of 6% over a period of five years:
| Year | ‘Leasing’ | Loan (Depreciation x 2) | ||
| Tax depreciation | Tax saving 25% | Tax depreciation | Tax saving 25% | |
| 1 | 35.361 (1) | 8.840 | 64.000 (2) | 16.000 |
| 2 | 37.542 | 9.386 | 64.000 | 16.000 |
| 3 | 39.857 | 9.964 | 64.000 | 16.000 |
| 4 | 42.315 | 10.579 | 8.000 | 2.000 |
| 5 | 44.925 | 11.231 | – | – |
In this case, the tax depreciation coincides with the cost recovery. In leasing, the tax depreciation is the lower of the cost recovery and three times the maximum table depreciation.
200,000 x 16% x 2.
Financial savings
In this particular case, financing the purchase of the vehicles by means of a “normal” loan and thus being able to apply the double SME depreciation (instead of the leasing scheme) means a higher depreciation of the assets and a higher financial saving of 2,521 euros (calculated at a rate of 6%), making it more convenient to resort to a loan.
Before leasing, check whether by taking out a loan and applying the SME double depreciation you can depreciate the asset more quickly than through the leasing scheme. This will result in greater financial savings.
