We buy a car. What is more profitable: a loan or leasing

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

Want to buy a car? Then this article is for you! Lifehacker conducted a large-scale study of the two main financial instruments for purchasing a car - lending and leasing. What is more profitable, and what "pitfalls" can you stumble upon? We will tell you about everything in detail and give specific examples.

47% of Russian families have a car. According to a VTsIOM poll, this figure has grown by 10% over eight years. In 2006, only 37% of the respondents had a car in their family.

According to the Association of European Businesses (AEB) automakers' committee, almost three million new cars were sold in Russia in 2013. In 2014, sales decreased by 8%, but there is still demand.

Students (23%) and housewives (25%) are more likely to make plans to purchase a four-wheeled "iron horse". It is not surprising that every second new car in Russia is purchased on credit.

The popularity of car loans is explained by the fact that it is difficult to save up and buy a car for cash. But there is another financial tool that makes the dream of a car sales. This is leasing.

Car leasing is a popular way of purchasing a car in the USA and Europe. There, up to 30% of cars bought by private individuals are on lease. In Russia, this figure is negligible. Why?

Let's analyze the mechanisms of car loans and car leasing, weigh their pros and cons and try to understand what is more profitable.

Car loan

A car loan is an interest-bearing loan issued by a bank or other lending institution to an individual for the purchase of a car.

This is a popular form of consumer lending. Peculiarities:

• This is a targeted loan: money can only be spent on buying a car.
• This is a secured loan: the car remains pledged by the bank until the loan is paid off.

The legal regulation of car loans is carried out by the Civil Code (Chapter 42), the Law "On Banks and Banking Activities" (dated 02.12.1990), the Law "On Consumer Credit (Loan)" (dated 21.12.2013) and other regulations.

Types of car loans

There are various loan programs for buying a car:

1. "Classic" (More details below);
2. Express loan: simplified registration procedure, but high interest rates;
3. Loan with buyback (BuyBack): part of the loan is "frozen" and paid at the end of the contract, either by the borrower himself or by the car dealer, provided that the proceeds are credited for the purchase of a new car;
4. Trade-in: exchange of an old car for a new one with a surcharge. The cost of a used car is counted towards the cost of a new one;
5. Factoring (interest-free loan): 50% of the cost of the car is paid, the rest is paid in installments;
6. Loan without a down payment: when lending from a car dealer, the absence of a down payment can be a bonus.

In addition, as separate areas, you can talk about loans for used cars and loans without insurance.

Car loan mechanism

Most often they resort to classic car loans. Let's consider its scheme.

You want to buy a car. There is no money for a new "iron friend". You go to a bank or a loan broker.

A loan broker is a commercial organization that acts as an intermediary between the borrower and the lender (bank or car dealer). Assists in the approval and registration of a car loan.

Car dealers can also act as creditors. They provide loans from their own funds or cooperate with banks.

You choose a bank (or car dealer), study the terms of lending. Having decided, fill out the form and collect the documents. The bank must make sure that you are able to repay the loan (solvency) and that you have no other debts (credit history). For several days, the bank thinks whether to issue a loan or not.

If the decision is positive, the bank and the borrower (now you) enter into an agreement. It specifies the term, interest, first installment, rights, obligations and responsibilities of the parties.

You buy a car. Sometimes banks recommend a specific car dealer, sometimes they build cooperation with a salon chosen by the client.

All the hassle of car design falls on your shoulders. Also, most often, the loan agreement provides for insurance at the expense of the borrower. And not only OSAGO, but also CASCO.

You are a happy car enthusiast! The main thing is to carefully pay off the debt and not forget that although you are the owner, the car is pledged by the bank. You have no right to sell, donate or exchange it. And if difficult times come and there is nothing to pay on the loan, the bank (car dealer) will take your "swallow".

Pros and cons of a car loan

Car loan, as a financial instrument, has its advantages and disadvantages.

Pros:

• You can have a car without capital. Only a few can buy a car for cash, but saving is not always possible.
• Big choice. You can buy what you like, but not what you have enough money for.
• A variety of lending programs: you can choose the most profitable for yourself (with a minimum period or, for example, without a long registration).

Minuses:

• Complicated registration procedure. Strict requirements for the borrower.
• Rise in the cost of a car. We'll have to pay interest + compulsory insurance.
• Car pledge.

Car leasing

The word leasing comes from the English lease - "rent". But in Russian law, leasing is not the same as lease. We have this type of lease relationship. In them, one party (the lessor) invests funds in the purchase of property, and the other (the lessee) accepts this financial service and uses the purchased property.

Leasing legal relations are regulated by the Civil Code (Chapter 34), as well as the Federal Law "On financial lease (leasing)" dated October 29, 1998.

The subject of leasing can be any non-consumable things (except for land), including vehicles.

Car leasing mechanism

Car leasing is the acquisition and transfer of cars for temporary possession and use for a fee on the basis of an agreement between the lessor and the lessee.

The general scheme is as follows.

You want a car. There is no money to buy. You contact a leasing company. You tell there what kind of car you would like to have, and show some papers.

Unlike a loan, the package of documents is minimal. As a rule, this is an application, passport and driver's license. From a procedural point of view, leasing is much easier than lending.

An agreement is concluded between you and the leasing company. From now on, you are the lessee.

Currently, the lessee can be both legal entities and individuals - NOT entrepreneurs.

Until 2010, the Law "On Leasing" contained a clause according to which the leased asset could only be used for commercial purposes. Mostly buses, trucks and agricultural machinery were leased. There was practically no financial lease of light vehicles.

But now there are leasing programs for citizens, according to which they can get any car for use. Currently, only three companies are engaged in leasing for individuals in Russia.

After the conclusion of the contract, the lessor buys a "dream car" for you and gives it to you for use.

The key word is use. The owner of the car is the lessor. In this regard, it is he who is engaged in the registration of the car, the passage of technical inspections and other troubles.

It should be noted that all additional expenses incurred by the lessor (insurance, taxes, etc.) are ultimately paid by the lessee, as they are included in the lease payments.

Lease payments are usually less than loan payments. The fact is that they are calculated after deducting the so-called residual value.

Residual value is the purchase price for a car that the lessee must pay at the end of the lease term in order to get ownership of the car.

Also, the amount of payments is affected by the presence / absence of an advance and its size. In other words, the more you pay at the beginning and at the end, the less you have to pay monthly.

During the lease term (from one to five years) you are a happy car enthusiast. The main thing is not to forget to make monthly lease payments and remember that at the end of the contract you will have to either buy the car or return it.

Types of car leasing

There are two car leasing schemes:

1. Leasing with the transfer of ownership. When the lease period comes to an end, you can become the full owner of the car by purchasing it from the lessor at the residual value.

   

2. Leasing without transfer of ownership. When the lease term comes to an end, you can return the car to the leasing company and choose another one by concluding a new contract.

   

Pros and cons of car leasing

Car leasing saves you a lot of hassle. For example, there is no need to waste time looking for a seller and registering a car. And this is not the only advantage.

Pros:

• More flexible payment schedule. As a rule, they are lower than the loan installments.
• Simplified procedure for collecting documents and concluding an agreement.
• The ability to update the vehicle every few years.

Minuses:

• The car is owned by a leasing company. At the slightest problems with payments, as well as financial difficulties of the lessor himself, he can be withdrawn.
• The car user cannot sublet it.
• Individuals do not have tax preferences for car leasing.

Automotive arithmetic

Knowing the mechanisms of car loans and car leasing, the main question still remains: "What is more profitable?"

To answer it, we asked Leasing-Trade to compare spending on leasing for individuals and car loans under equal conditions. Here's what happened.

“The property was chosen - a 2014 Toyota Corolla, the cost of 690,000 rubles (sedan; engine power - 1.6; 122 hp).

We took standard calculations for a car loan: the loan amount is 690,000 rubles, an advance payment of 20% or 193,800 rubles, for a period of 36 months. They took the calculation of a car loan from a well-known bank (let's call it X) as a basis. The interest rate on his lending program with a standard set of documents is 15% per annum. The calculation was made without taking into account financial protection programs, OSAGO, CASCO and additional costs.

The calculation of leasing for individuals was made based on the offer of one of the leasing companies (let's call it Y). The monthly payment did not include OSAGO, CASCO, as well as mandatory and related payments (transport tax, registration of the vehicle with the traffic police, annual maintenance, etc.).

Car maintenance costs will be approximately equal in both cases, are mandatory and calculated separately.

CASCO and OSAGO insurance was carried out on the basis of the following parameters:

• OSAGO: 5,500 rubles; region - Kazan; driver's age - over 22 years old; driving experience - more than 3 years; car power - 122 HP One driver is allowed to drive.
• CASCO: 86,000 rubles; vehicle registration place - Kazan; information about an individual: man, 30 years old, marital status - married, one child; driving experience - more than 6 years, accident-free driving. One driver is allowed to drive.

	Car loan	Car leasing
Car cost	RUB 690,000	RUB 690,000
Interest rate	15%	no, since the car is being returned
Term (in months)	36	36
Down payment 20%	RUB 138,000	RUB 138,000
Payment type	uniform	uniform
Monthly payment	RUB 19 135	RUB 11,790
Interest overpayment	RUB 135,000	no, since the car is being returned
The total amount of payments = the amount of payments under the agreement (credit / leasing) + advance	688 860 + 138 000 = 826 000 rubles.	424 440 + 138 000 = 562 440 rubles.
Security deposit	0	0
CASCO insurance	RUB 86,000	RUB 86,000
OSAGO	RUB 5,500	RUB 5,500
Vehicle registration with the traffic police	RUB 2,000	RUB 2,000
Transport tax	4 270 RUB	4 270 RUB
Minimum income for a purchase	RUB 31,900	RUB 31,900
Market value of the car at the end of payments	RUB 539,000	0
Advance redemption payment	absent	RUB 441,000
Car ownership costs	RUB 826,000	562,440 + 441,000 = 1,033,440 rubles.

»

Thus, if we consider the option in which leasing does not provide for the transfer of the car into the ownership of the client, then the monthly payment under the lease agreement will be lower by 7,345 rubles (that is, by 38%). Property insurance costs will be equal in both cases and are mandatory.

But if we take a situation in which a car is purchased for the purpose of long-term (up to 5 years) operation, and in the case of leasing an individual and with subsequent purchase of ownership, then, undoubtedly, a car loan will be a more economically feasible and cheaper way of obtaining a car. Since the acquisition costs (excluding insurance and compulsory costs) will amount to 826,000 rubles for a car loan versus 1,033,440 rubles for car leasing."

At the same time, our expert draws attention to the fact that:

• for mass and popular brands (Kia, Opel, Nissan, Mitsubishi, Chevrolet) and premium brands (BMW, Audi, Mercedes-Benz, Porsche and others), the discount of leasing companies can be on average 10%, which makes it possible to make calculations much lower (often in twice) than for a car loan.
• for premium clients with a high level of income, leasing will be a profitable and comfortable service, since it is possible to include insurance, payment of tax, maintenance and repair of the car in the payment.

What should you choose?

After the amendments were made to the Law "On Leasing", many experts predicted a boom in leasing transactions with individuals. After all, it would seem that the benefits are obvious. No guarantors are needed, less nerves during registration, and most importantly - lease payments are not so burdensome for the family budget. But the boom did not happen.

Comparative table of car leasing and car loans:

	Car loan	Leasing for individuals
Property	New and used cars	Exclusively new foreign-made passenger cars, excluding Chinese cars
Financing term	12-60 months	12-36 months
Prepaid expense	Banks rarely issue car loans without a down payment. Minimum advance payment from 15%	An advance from 0%, but leads to an increase in the cost of monthly payments. Minimum advance payment from 20% to 49%
Package of documents	Standard: passport, certificate of income 2-NDFL, copy of work book. Reduced package is more expensive at rates	Standard: passport, driver's license (sometimes also a certificate of income 2-NDFL)
Car insurance	Obligatory annual insurance of OSAGO, CASCO. Optional: voluntary life and health insurance, financial protection programs. It is possible to include CASCO in payments	Obligatory annual OSAGO insurance. It is not necessary to insure CASCO, but this leads to an increase in the cost of the monthly payment
Ownership	The car is the property of the client, but is pledged by the bank	The car is the property of the leasing company, and the client is transferred for temporary use under a contract
Registration speed	You can buy a car on credit in a short time with a minimum package of documents for Autoexpress programs. Typically, interest rates rise by 2%	You can purchase a car in a short time on leasing with a minimum package of documents
Mileage limitation	Not limited	Limited mileage to 25,000 km per year
Other restrictions	–	Departure of the car abroad only with the official permission of the leasing company
Additional services and service	–	The lease agreement may include full insurance, annual technical inspections, seasonal tire fitting and storage, accounting features, payment of transport tax, etc. All this leads to an increase in the cost of the monthly payment.
Early partial or full repayment	Loyal banks usually have unlimited amounts and terms	Strictly no earlier than 6 months
Redemption value	Absent	Adjusted based on the condition of the car, can be calculated in advance at the stage of concluding a contract
Seizure of property	Through the court in the event of a delay under the contract	According to the agreement, the owner of the property is the leasing company, in case of default on obligations under the agreement, withdrawal is made without a court decision

»

According to experts, the main reason for the lack of demand for leasing for individuals in Russia is in the tax system.

In the USA, where car leasing is very popular, there is so-called “household financial reporting”. That is, the budget of a private person is considered in the same way as the budget of an enterprise. In this regard, by leasing a car, a citizen receives the same tax benefits as a businessman. In Russia, only legal entities can return VAT. For them, leasing is really profitable, as it allows you to minimize taxes. For individuals, VAT is included by the leasing company in monthly payments.

In addition, there is a significant difference in the psychology of domestic and Western motorists. "The car is not mine - they will almost take away, and my money was crying." Such reasoning stops many who are looking at car leasing. Indeed, a leasing company does not even need to go to court to claim a car in case of problems. When paying off a loan, a person perceives it as a contribution to his property.

Thus, when choosing between a car loan and car leasing, it is important to have a good understanding of your needs. If you need a status car, and you want to regularly update the car, then, most likely, a financial lease without redemption is suitable for you. If you want a reliable "iron friend" for many years, then the loan will be more profitable.

Tell your friends about this article and express your opinion in the comments. What, in your opinion, is more profitable: a car loan or car leasing?