Leasing loan – how is it different from leasing?

January 29, 2020 0 Comments

Financial services are constantly changing and adapted to the requirements of consumers. New solutions are also emerging. These include a leasing loan. How does it work and how does it differ from classic leasing?

One of the foundations of the financial market is extensive services tailored to the very diverse needs of consumers. People, for example, reach for banks for a variety of reasons. Some want to finance an urgent expense. Others want to finance the purchase of a good whose cost exceeds their current financial capacity. Still others in financial services see a way to easily and quickly acquire e.g. a car or laptop.

Depending on the needs, consumers can take advantage of e.g. a bank loan. It’s not everything. Leasing has also been very popular in recent years, primarily used by people interested in acquiring a car. An alternative solution may be a balloon loan.

In addition to leasing, so-called leasing loan, which can be an interesting alternative to more traditional financial products. It is definitely worth taking a closer look and characterizing not only its special features, but also the differences in the context of ordinary leasing and credit.

What is a leasing loan?

What is a leasing loan?

This concept covers a financial product that, according to its name, is a combination of a loan and a lease. This is an indirect solution that is the answer of leasing companies to the needs of customers who are not VAT payers, who complained about the problems with using leasing. Leasing difficulties also occur to entrepreneurs who are beneficiaries of EU subsidies.

Leasing companies have been losing clients to banks so far. The formalities were too complicated and complicated, which made the industry look for ways to retain potential customers. At the beginning, the solution was to be so-called bridging loans. Over time, they evolved into leasing loans. This solution turned out to be a hit, because in addition to customers with EU subsidies, other groups of consumers began to use them.

This is well illustrated by the statistics of the popularity of loan services that leasing companies have been providing for several years. In 2017, the leasing services market increased by 15.7%, which was significantly influenced by – as mentioned by the Polish Leasing Association – loans 1. The leasing loans market is becoming more and more popular, which translates into the growing potential and value of this industry.

Leasing loan and leasing – differences

Leasing loan and leasing - differences

When characterizing a leasing loan, it is impossible not to combine it with another, related product. Of course, we are talking about leasing. The differences between these are significant and worth pointing out. What’s more interesting, in its basic assumptions, the leasing loan is closer to the loan than to ordinary leasing.

  • A leasing loan has a relatively smaller number of formalities.
  • By using this method of financing, e.g. when buying a car, the consumer automatically becomes its owner. In the case of leasing, the leasing company has ownership rights.
  • In the case of leasing loans, much less or not at all (depending on the company) is required downpayment. This element is the basis of classic leasing.
  • Another significant difference between a leasing loan and leasing is also the duration of the contract. In the case of leasing, the so-called minimum period. It amounts to e.g. 40% of the standard depreciation period, which means not less than 2-3 years. Restrictions are imposed by, among others Accounting Act 2. In the case of loans, there is much more freedom. It is possible to get a leasing loan for several months. These conditions are more widely agreed between the leasing company and the consumer.

Leasing loan and credit – similarities

Leasing loan and credit - similarities

We already know how the leasing loan differs from classic leasing. As I mentioned, in detailed assumptions it is actually closer to bank loans. It has several clear similarities with these types of financial products:

  • Like a loan, a leasing loan also allows you to finance the purchase of property that becomes the property of the consumer. He undertakes to pay subsequent installments on set dates, but during the commitment the leasing company or bank do not own, for example, a car.
  • Common points between the leasing loan and the loan can also be seen in the context of how the monthly installment is calculated. In both cases, it is possible to count only the interest part as basic costs. The installment does not include VAT. In this way, the amount of the monthly installment of both the consumer loan from the bank and the leasing loan is potentially lower than in the case of ordinary leasing.
  • Both leasing and bank loans often have an adverse effect on the creditworthiness of an enterprise. By many companies, they are treated as a liability burdening regular finances, which makes the ability expressed by BIK scoring worse. This, of course, applies to those companies that cooperate with this registry.

For whom is a leasing loan the best solution?

For whom is a leasing loan the best solution?

Since we already know the basic assumptions of the leasing loan, it is time to determine the group of consumers for whom it is the best solution. It is very extensive, which is why we present them in the following sections.

  • Enterprises and companies that are also applying for EU funding.
  • Farmers, including those who do not run a business.
  • Enterprises and companies that do not pay VAT.
  • People who want to obtain attractive financing for the purchase of property while maintaining relatively low installments.
  • Enterprises and companies that are looking for the best way to finance the purchase of a fixed asset. We are talking here about an 8% VAT rate.

What can you finance with a leasing loan?

What can you finance with a leasing loan?

As a leasing loan is a solution tailored to a very wide range of entrepreneurs, the list of examples of property that can be financed with this financial product is also extensive. It includes, among others:

  • delivery vehicles and trucks,
  • cars,
  • transport equipment (semi-trailers, etc.),
  • agricultural machinery,
  • construction and specialist equipment,
  • medical equipment,
  • IT industry equipment,
  • other equipment and specialized industry equipment,
  • real estate and premises.

What kind of property will we not finance with a leasing loan?

What kind of property will we not finance with a leasing loan?

The fact that a leasing loan opens up a wide field for entrepreneurs to purchase various types of equipment does not mean that there are no significant restrictions. When considering this method of financing, it is worth remembering that a leasing loan:

  • is not optimal for people who want to buy so-called non-current assets. We are talking here about the need to raise funds for construction or renovation, for example. The desire to modernize equipment or premises, as well as the purchase of current assets, is also not very suitable here. In this case, credit may be better,
  • it may also be a low-cost solution for people who want to purchase unusual, rare property. As in the case of classic leasing, leasing companies are reluctant to support the purchase of equipment that is not in high demand on the secondary market. This problem applies, for example, to machines built for individual customers.

Where can you get a leasing loan?

Where can you get a leasing loan?

As we mentioned in earlier parts of this article, a leasing loan is a specialty of leasing companies. As a result, consumers or entrepreneurs interested in such financing should look for it on the non-banking market. Only a few years ago, the leasing loan was a niche solution, because it was relatively young and developed recently.

Over time, however, more large companies began to offer it on the Polish market, which is why the choice is now increasing. This is well illustrated by statistical data – in 2017 leasing loans accounted for as much as 15% of the activity of all leasing companies on the market. Total expenditure on leasing loans amounted to $ 9.9 billion 3. Consumers can therefore enjoy more and more choice, which facilitates, e.g. negotiating attractive monthly installments.

Leasing loan – the biggest advantages

Approaching the summary of today’s guide, it’s time to highlight the most important strengths and weaknesses of the leasing loan. For starters, advantages.

  • A leasing loan has a relatively small number of formalities. Obtaining this method of financing is faster than in the case of classic leasing.
  • Loan installments are exempt from VAT.
  • The lease loan repayment period is much shorter than that of ordinary leasing.
  • There are leasing companies that do not require consumers to make their own contribution.
  • A person who decides to take out a leasing loan becomes the owner of the financed property.
  • This is the optimal solution for people who benefit from EU subsidies.

Leasing loan – the biggest disadvantages

Once you know the bright side of the leasing loan, you cannot point out the drawbacks. For many consumers they can be very important.

  • The leasing loan is often visible in the BIK register. If the leasing company cooperates with the Credit Information Bureau, incurring the said liability reduces the creditworthiness.
  • Although there are companies that do not require an own contribution, this is not the rule. Some lessors, especially when buying expensive property, may require expensive security. In addition to insurance, it can also be an own contribution.