To cover the business development needs, Romanian entrepreneurs turn to various sources of financing. Thus, when they want to purchase a fleet of vehicles or renew their fleet and do not have their own funds, companies can use two financing instruments: car loan or financial leasing.
Although ideally the most recommended is for entrepreneurs to use their own sources of financing, few companies have the financial strength to make such an expensive purchase. Thus, for the creation or updating of a car fleet, financial leasing and credit are the most accessed financing methods.
Both the financial lease and the car loan involve the payment of monthly installments by the applicant. Statistically, most individuals use car loans, while companies opt more often for financial leasing, which gives them the opportunity to fully deduct monthly installments and additional costs.
What are the differences between financial leasing and car loan?
Car leasing financing
The financial leasing is based on a rental system, the leasing company being the owner of the vehicle during the contractual period, which transfers its right of use to the applicant. At the end of the contractual period, the applicant company has three options: either buy the asset by paying a residual value, or extend the lease, or terminate the contractual relationship.
Also, according to art. 7 of the Government Ordinance no. 51/1997 amended, the contractor cannot fully repay the amount due earlier than one year, this law prohibiting a leasing contract to have a duration of less than 12 months.
For companies, especially for start-ups, financial leasing can be a more advantageous choice than car credit, being easier to access. In addition, financial leasing is an integrated financing package, which includes insurance and after-sales services for the purchase of cars.
In most cases, the guarantee is the financed car itself, but some leasing companies may require additional guarantees depending on the creditworthiness of the customer. However, the approval of the file is often faster than that of a bank loan. Moreover, financial leasing is also more advantageous in terms of the level of bureaucracy, the procedure for concluding the contract being faster and requiring simplified documentation. As this form of financing allows the negotiation of contractual terms, the applicant may obtain certain additional benefits.
The flexibility offered by a financial lease allows the user to choose the amount of the advance, the periodicity of the installments and the contract period. Thus, the contracting company can establish a personalized plan through which to use the company's resources in an efficient and flexible way.
Car loan financing
Like financial leasing, car credit is a financing instrument that covers the costs necessary to purchase a car, but the company applying for a car loan will be the owner of the vehicle fleet from the beginning of the loan period. The loan will be paid in monthly installments, which include the share of the purchase value of the goods (VAT included), the interest rate and the commissions for the credit. Those who take out a car credit may call for early repayment at least 6 months after the signature of the contract.
The car loan forces the client to take out FULL CASCO insurance. Depending on the policies of the lending institution, the insurance costs will be borne by the client or the bank. The loan is guaranteed with the car purchased and with the CASCO insurance policy assigned in favor of the bank.
For car credit approval, the customer must provide a copy of the ID, a utility bill attesting residence, a standard salary receipt, documents attesting other payment commitments (if applicable) and a proforma invoice from the dealer.
However, a credit is a fee-giving but also a management fee. Moreover, the installment not included VAT-and the duration is longer than for financial leasing.