What is leasing?

Learn more about leasing, and when its a good solution

What you need to know about leasing

An increasing number of people look to leasing as an option when the car needs to be replaced. There are many viable reasons to consider leasing, including budget, tax benefits, the company’s cash position and much more.

If you are considering leasing your next vehicle, it is a good idea to get acquainted with the advantages, disadvantages and rules concerning the individual leasing model.

What is leasing?

Leasing is particularly interesting to you, if you are in the habit of changing cars often.

Leasing provides contract for the right of use of a specific car for a limited period of time. The agreement depends on your wishes and needs as the lessee. A leasing agreement usually spans 12 to 36 months, but it can be both shorter and longer. If you want to know more about the various Danish leasing options, click here.

The financial aspects of leasing

A leasing agreement consists of three main features: first installment, monthly payments and residual value.

Leasing is based on the law of proportionate registration fee, which means that rather than pay the full registration fee, you pay the fee in rates as long as the right of use belongs to you = the leasing period.

The age of the car determines the size of the monthly fee. If the car is new (0-3 months), you pay 2 % a month, is the car 3-36 months old, you pay 1 % a month. Is the car older than 36 months, you pay a fee of 0.5 % a month.

The leasing company owns the car while you have the right of use for the leasing period. Once the contract expires, you return the car to the leasing company, or you may decide to sell the car to a third party. The latter option depends solely on the leasing solution.

What does a leasing agreement consist of?

Your leasing contract contains all details pertaining to your agreement. Car make, model and equipment is described as well as the start date and duration of the agreement and much more, including the financial specifications, i.e. first installment, monthly payments and your obligations in relation to the expiration of the leasing period.

Furthermore, you will find terms and conditions and consequences if your use deviates from the crucial elements, as agreed upon entering into the contract, e.g. higher mileage when you return the car, etc.

Leasing target group and benefits

Leasing is clear-cut way for entrepreneurs and companies to finance cars primarily used for work purposes. You tie down significantly less liquidity in the car and gain noticeable tax and accounting benefits.

Private people can gain similar advantages in connection with reduced cash commitments, particularly if you change cars on a regular basis and wish to lease a more expensive car than you might consider buying.

What is the first installment

No matter if you choose flex leasing or private leasing, you have to pay a first instalment.

The payment usually covers the expected depreciation for the period, startup expenses, MOT expenses and registration fee as well as any insurance and deposits.

Are there other costs than the monthly payments?

As in any car purchase there are costs you should not omit when calculating the cost of your new car.

If you choose flex leasing service, repairs, maintenance, insurance, green taxes etc. fall to you.

If you choose private leasing most of the aspects mentioned above are covered by your leasing terms.

Does financial status influence the leasing agreement?

In any financing situation, your financial status will be checked out in connection with entering into a leasing agreement.

The leasing company will gather information from the Danish Ribers Kredit Information and similar institutions.

If there are no negative notes your agreement is well on its way.

In certain situations, the leasing company may ask you to provide a guarantor or accept a larger than average first instalment as collateral for the agreement.

Does leasing provide tax benefits?

If you own a company or are an entrepreneur, all leasing costs are fully deductible unlike financing, where only the interest is deductible. This makes leasing extra attractive for companies that primarily use the car for work purposes.

What is all-inclusive?

All-inclusive leasing is a financially viable and precisely calculated way of purchasing a car.

As you may have guessed, all-inclusive leasing includes all costs for the use of the car. In fact, you can compare this kind of agreement to renting a car.

The only thing you have to worry about is costs for fuel - and if your right foot weighs a little too heavily on the accelerator.

What you need to know about returning a leasing vehicle

If you picked a private leasing agreement, you have to return the car to the leasing company once the agreement expires.

Once the car is returned, it will go through thorough checks to ensure it meets the condition requirements stated in the contract.

Usual wear matching the cars age and usage is acceptable. You can solicit your contract to confirm what kind of wear your leasing company indicates as usual usage. If you agreement matches the Danish FDM (united Danish motorists’ union) guidelines then your lessee status is good.

If the car’s condition is not acceptable, you will be held accountable for any repairs or be asked to pay for the depreciation. Therefore, it makes sense to keep the car in good repair for the entire leasing period.

Small thrown-up pebbles, minor damage to the interior etc. are usually accepted by the leasing company, but significant damages will result in an extra bill going your way.

Likewise, it often pays to take the car to a professional car preparation shop before turning it in.

If you have chosen a flex leasing agreement, you must refer to a third party who is willing to buy the car at the residual value stated in the agreement.

As a flex lessee you must expect a reduced value in case of disrepair and thereby a lower sales price than the residual value of the car. As the lessee, you must cover any negative remainder owing to the leasing company.

Advantages and disadvantages of leasing

Below is an outline of the advantages of leasing:

  • Affordable monthly payments
  • Improved cash position
  • Financial predictability due to fixed monthly costs (private leasing)
  • Individual contracts
  • Tax advantages for entrepreneurs and companies
  • Easy access to current car-makes and models

Below is an outline of the disadvantages of leasing:

  • You don’t own the car, the leasing company does
  • Risk of additional payments if the car is not returned/sold on as per the contract

If you want to know more about the various Danish leasing solutions, we have compiled all of them in a practical overview for you to sift through - just click here to get to Leasing Solutions.