2024 Author: Howard Calhoun | [email protected]. Last modified: 2024-01-17 18:37
Why save up money for a vehicle for many years, if you can quickly become a car owner by issuing a lease or a loan? In both cases, you will have to conclude an agreement with the bank, leave property as collateral and pay interest on the use of money. What is the difference between a loan and a lease?
Essence
A loan is a targeted loan, which is issued for a certain period of time with specific conditions. The client returns the amount of money to the bank, including interest. The service can be issued by enterprises, citizens of the Russian Federation and foreigners who have a regular income in Russia. The difference between leasing and a loan is that in the second case there is a lease with the right to purchase. The Bank acquires and transfers to the client the subject of the transaction, which remains the property of the financial institution until all the conditions of the agreement are fulfilled. The buyer does not participate in the settlements with the seller. Here, briefly, is the difference between a loan and a lease.
Development history
In the 80s in Russia, financial leaseused in foreign trade operations when purchasing equipment. In particular, Aeroflot acquired European airbuses on such terms. In the 90s, the first companies began to form: Aeroleasing, Rosstankominstrument, Leasingugol, Rosagrosnab, which existed at the expense of budgetary funds. In order to coordinate activities and protect the property interests of the participants, the Rosleasing Association appeared in 1994. At the legislative level, operations began to be regulated only when the Law “On the Development of Leasing in Investment Activities” came into force and amendments were made to the Civil Code.
The difference between leasing and a loan
For a better perception, we decided to present these differences in the form of a table.
Features | Credit | Leasing |
Decision deadline | 2-3 weeks | 1 day |
Number of payments | 5-10 | 1 |
Average funding term | 1 year | 3 years |
Negotiations with the seller | On my own | Bank |
Minimum customer activity | 1 year | No limit |
Bail | Yes | Notrequired |
Region binding | Yes | No |
Bank to bank relationship | The borrower is a regular customer | Missing |
Payment structure | Annuity payment | It is possible to create an individual schedule and change it if necessary. |
Number of contracts to sign | 4 (credit, pledge agreement, insurance, sale and purchase) | 2 (leasing and sale agreement) |
Notarization of documents | Yes | No |
Income tax | Repayment of the body and interest on the loan is carried out at the expense of the company's net profit | Payments are charged to cost and not subject to income tax |
The key advantage of leasing from a loan is that, with small volumes of transactions, a transaction can be executed without collateral. Banks will require a money back guarantee anyway. Most often, the value of collateral is several times higher than the amount of the loan. For small businesses, this becomes a big problem. The bank will not complete the transaction until it is convinced of the solvency of the client. A positive leasing decision can be obtained even with negative financial indicators.
Economy
What is the difference between a loan and leasing for legal entities? Financial lease helps to save time and money. The bank considers an application for a transaction on average five working days, and then makes a decision. If it is positive, then the client signs a leasing and purchase agreement for the object. In addition, all payments are charged to the cost of property.
It's different with credit. To apply, the organization needs to collect a large package of documents to confirm its solvency and draw up a business plan. After that, the bank carefully examines the credit history, the volume of assets and liabilities, the availability of collateral and collateral. After that, documents are drawn up. This process takes an average of one month.
Funding
When leasing, the client pays an advance and insurance payment. In the case of a loan, it is additionally necessary to finance the bank's commission for processing the transaction, currency conversion, if equipment is purchased from a foreign counterparty, and notary services. The difference between leasing and a loan for individuals is that a financial lease exempts the client from paying a transport fee and such services as registration with the traffic police. All these costs are paid by the company that draws up the transaction. In the future, the client compensates the bank for all expenses. The average lease term is three years.
Freedom of choice
In a credit transaction, the client independently searches for a seller, selects an object(car, equipment, apartment), and then applies to the bank for a loan. The financial institution makes the payment, and the borrower then repays the debt, including interest. The problem is that banks do not always cooperate with companies that are of interest to the buyer. For example, a VTB client wants to get a car loan to buy a Honda, but the financial institution may not cooperate with this dealer. He will either have to look for another car, or arrange a service at another bank. In the case of leasing, the intermediary company is looking for the right object according to the requirements of the customer. It also handles the sale and purchase. Then the object is transferred for temporary use to the client. This is how a loan differs from a lease.
Property
Let's consider this point on the example of buying a car. When applying for a loan, the vehicle becomes the property of the bank. He is also a pledge. In the case of leasing, the object of the transaction passes to the borrower only after the payment of all payments, and until then remains in the ownership of the company. What is the difference between leasing and car loan? All issues related to the insurance of the object are handled by the intermediary company. Some banks issue loans without CASCO, but at the same time increase the interest rate and down payment (up to 40%).
Both types of transactions require prepayment. But if, when applying for a car loan, it is enough to deposit 10-20% of the amounts, then in the case of leasing, the larger the down payment, the better. It is not profitable for the bank to execute a transaction at 50% of the costauto. An intermediary company may consider a client not solvent if he can only contribute 20-30% of the cost of the car. This is how leasing differs from a car loan.
Interest rates
Depending on the chosen credit policy, remuneration for cash can be calculated from the initial or residual amount. The second method is most commonly used. If interest is charged on the original amount, then the overpayment is twice the amount of the loan. There are few people who want to apply for a loan on such conditions.
The interest rate includes a fee for financial resources, administrative costs, profit margin and risk coverage. Each financial institution calculates its value independently, depending on the interbank market, the company's financial performance, and the loan structure.
Business Benefits
It has been said before that leasing helps to save money. All payments can be settled in kind, that is, with products that are manufactured by equipment purchased under a finance lease. The contract may provide for additional work. What is the difference between a loan and leasing, if the subject of the transaction is fixed assets, is discussed below.
Characteristic | Credit | Leasing |
Type of depreciation | Standard method | Allowedapplication of an accelerated method that reduces income tax |
Deadline | 5-7 years | According to the term of the contract |
Property tax | No benefits | There are savings in the case of accelerated depreciation |
Accounting on the balance sheet | Customer | According to the terms of the transaction: client or lessor |
Related to costs | Interest | All payments |
Borrowers note high customs duties on imported equipment, a small number of intermediary companies, a limited range of products that can be issued under a financial lease. This is how leasing differs from a loan.
What is more profitable for businesses and individuals?
The financial lease service is available to everyone. But, due to the possibility of reducing the base for calculating property tax, it is more profitable to arrange leasing for individual entrepreneurs and legal entities. Ordinary consumers can purchase goods on credit. This allows you to plan your expenses in advance, attract co-borrowers, guarantors.
Example
The difference between leasing and loan and rent is that the subject of the transaction is a specific item that the client can redeem. Only after the repayment of the residual value does it become the property of the borrower. If the client does not want touse an object (equipment, vehicle, etc.), he must arrange a leaseback service in advance. Its essence lies in the fact that at the end of the contract, the borrower presents the subject of the transaction back to the bank. But such an operation is not beneficial for the client.
The client wants to buy a Toyota Corolla car for 690 thousand rubles. Standard conditions:
- Advance payment - 20%, that is, 193.8 thousand rubles.
- Term - 36 months.
- The bet is 15%.
- The cost of OSAGO, CASCO, vehicle registration are not included in the contract price. The client pays for them himself.
Car loan | Leasing | |
Vehicle price | 690 thousand rubles. | |
% | 15 | Not available (leaseback) |
Term (month) | 36 | |
Advance payment | 138 thousand rubles | |
Payment type | annuity | |
Monthly payment | 19 RUB 135 | 11790 RUB |
Overpayment by % | 135 thousand rubles | Not available (leaseback) |
Total amount of payments, thousand rubles. | 19 13536 + 138,000=826 | 11, 7939+138=562, 44 |
Bail | 0 | |
CASCO insurance | 86k RUB | |
OSAGO | 5, 5 thousand rubles | |
Registration of the vehicle in the traffic police | 2 thousand rubles | |
Transport tax | 4, 27 RUB | |
Advance redemption payment | missing | 441 thousand rubles |
Procurement costs | 826,000 RUB | 562, 44+441=1033, 44 thousand rubles |
The monthly leaseback payment is 7345 rubles less than the loan. In this case, the deputy at the end of the contract will not receive ownership of the car. Even if the vehicle is purchased on the terms of a subsequent redemption, it is better for individuals to apply for a car loan. Then the sum of all expenses will be 826 thousand rubles.
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