This article covers Polish regulations and market practice. The principles apply elsewhere, but check the rules in your country.
Vehicle leasing is a solution that is becoming increasingly popular
How does it differ from other forms of fleet financing, and is it a cost-effective option? Read our article to learn the benefits of leasing.
What is vehicle leasing?
When building a fleet of company vehicles, there are several financing options to choose from. One of them is, of course, purchase – for cash or on credit. Leasing, however, is becoming an increasingly popular solution.
The assets made available under a lease – in this case vehicles (although they can also be computers, machinery or even furniture) – remain the property of the leasing company. For a specified period, however, they are made available to the company for a fee (usually in the form of lease instalments). Leasing terms can vary, depending on what is agreed between the lessee and the leasing company.
Depending on the form of leasing adopted, at the end of the period of use the company may be given the option to buy the vehicles it used. It is standard to pay a so-called "initial rent" – a first payment, generally around 10–20% of the car's value. (The exact amount depends on individual arrangements: in some cases the first instalment is higher or lower.)
Types and benefits of leasing
There are several types of leasing, and the precise terms of the contract are usually agreed individually with the specific customer. Above all, however, we can distinguish between operating leases and finance leases.
With an operating lease, the tax-deductible cost is the first payment (the "initial rent") and all subsequent lease instalments. They therefore reduce the tax base. (This does not apply to all passenger cars – since 2019, restrictions have been introduced on deducting leasing costs.) In this case the right to depreciate the asset is retained by the leasing company.
An operating lease contract has a specified minimum term: 40% of the depreciation period. For vehicles it is usually concluded for a period of 2–5 years. At the end of the term, the company most often buys the vehicle it used for less than its current market value. This form of leasing is currently the most popular in Poland.
A finance lease is sometimes compared to a loan. The term of such a lease can be of any length, and depreciation is written off by the lessee. The tax-deductible costs are the depreciation write-offs and the interest portion of the instalments. Finance leases tend to be chosen more readily for goods with a lower VAT rate.
Long-term rental can be considered a specific type of leasing. In this case the instalments are usually slightly lower, and at the end of the contract the asset used (in this case the vehicle) returns to the lessor.
Purchase, vehicle leasing, long-term rental – which option pays off?
Purchase, leasing, or perhaps long-term rental? Is it worth leasing a car and which option is the most advantageous? As usual in such cases, the answer is: it depends. Each solution has its pros and cons. Which one is ultimately the best depends on many factors, including the company's current financial condition, the size of the fleet, the type of vehicles it needs, how they are to be used, and the terms offered by the seller or leasing company.
An operating lease is an option that is particularly popular at the moment and worth considering. This is partly because using vehicles is cost-effective for a specific period. After a few years (the period varies depending on the type of vehicle), using them generates ever higher costs, related to repairs among other things. Many companies therefore decide to lease a car and then buy it for less than its market value. At that point the company can either resell it and lease further vehicles, or keep the vehicle. (The advantage of keeping it in this case is that they own a vehicle whose history they know perfectly.)
Vehicle leasing – an operating lease usually turns out to be a cheaper option (also taking into account the possibility of later selling the vehicle) than buying a car on credit or long-term rental. It is not always the most convenient solution, however. Much depends on individual arrangements, but often, for example, the possibility of modifying leased cars is limited – if such modifications are necessary, purchase may be the better option. Buying on credit remains less cost-effective, while buying for cash means having to lay out significant sums at once.
Long-term rental means lower instalments – or rather a usage fee. It is a solution for those who want costs to be as low as possible in the short term. On the other hand, it is not usually a cost-effective option in the long run. In addition, with long-term rental there are usually greater restrictions on how the vehicles can be used. (There may even be restrictions on the maximum number of kilometres that can be driven.)
The decision on the form of fleet financing is therefore best made after preparing a list of requirements and needs – and then asking leasing and car rental companies for specific offers.
