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What is car leasing?

by Faysel
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Car leasing or leasing is another way of acquiring a car and it has its particular characteristics, advantages and disadvantages compared to other more popular models, such as automobile credit.

The main difference between car leasing and financing is that in the former you are only renting the car for which you pay a monthly rent, but the unit is not yours; While in the second case, the car is yours, with certain conditions, and you pay for it through monthly rents for a period of time.

At first glance, leasing seems like an enviable way to buy a car, but as it almost always happens in financial matters, everything will depend on the profile of each person, their tastes and needs.

There are two types of leasing: pure and financial

First we understand 100% what automotive leasing is all about.

What is car leasing?

A lease is the rent of a good for a payment during a certain period, that is, the lessor buys, for example, a car and rents it to you for an amount during the time that is established in the contract, which generally ranges from 12 to 36 months.

At the end of this period, you have three options:

  • Renewing the lease with a new car
  • Buying the car for the residual cost
  • Or, return the vehicle and end the contract.

These possibilities will depend on whether it is a pure or financial lease.

Pure and financial leasing

There are two types of car leasing:

  • Pure lease
  • Financial leasing

Although it will depend a lot on where you go, in pure leasing , you pay the rent of the car and in the end you have the option of returning it and ending the lease or renew it with a new car.

In financial leasing , at the end of the term, you can purchase the car for its remaining value, either financed or cash, or extend the lease term for lower monthly rents.

Tax deduction

One of the most important benefits of leasing , and for which it is gaining popularity in our country, is the tax deduction, although this will also depend on the type of lease you hire.

In the case of pure leasing , the monthly rent payment is 100% tax deductible.

For its part in financial leasing, the tax deduction is approximately $ 200 per day, about $ 6,000 per month with VAT included. This is the case of combustion cars, there is also a cap of $ 175,000 of deduction throughout the life of the lease.

For hybrid and electric vehicles, you can deduct up to $ 8,550 per month ($ 285 per day). With a ceiling of $ 250 for the duration of the lease.

Advantages and disadvantages of leasing

This purchase model can be beneficial for people who like or need to constantly renew their car since they forget about factors such as the depreciation of the value of the vehicle, or the maintenance of the car in the long term.

The main advantage, without a doubt, is the tax deduction, however it should be taken into account that not all people can deduct the purchase of a car through this scheme.

The major beneficiaries of car leasing and its tax deduction are legal entities , that is, companies, whether they are SMEs or large corporations.

Similarly, salaried individuals with business activity , who can guarantee that their expenses are related to the activity of the company.

Finally, the people who work for fees, since we can say that all their activities are related to their business activity.

One more advantage of car leasing is that the monthly rent is lower than the monthly payments in financing.

One of the few restrictions you can find in car leasing is the mileage restriction. Many rental companies establish in the contract a certain value of kilometers that you must not exceed, otherwise, you will be charged a penalty for the excess distance.

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