Car financing forms
On the one hand, the car facilitates the functioning of the company, but on the other hand it is a considerable expense. This means that the decision related to its purchase requires a thorough analysis of all the possibilities that we have. We have several options for financing purchases. We can use external financing in the form of credit or leasing. However, if we have cash, nothing prevents us from using it to buy our vehicle.
Leasing or credit?
From the entrepreneur’s point of view, we are interested in several factors. First, of course, the cost of the product, i.e. interest, fees and commissions. Secondly, the vehicle can be depreciated and an entry in the tax deductible cost. What do the above elements look like in each product? Leasing requires a distinction between two types – operational leasing and financial leasing. In the first case, the lessee enters the entire installment in the tax deductible cost. It does not deduct depreciation. In the case of financial leasing, it deducts depreciation from tax, but only the interest part is deducted from the installment. Financial leasing, due to its design and smaller tax benefits, is less common on the market. Let’s focus on operational leasing and analyze the example.
Let’s assume that an entrepreneur buys a car worth PLN 65,000 in operating leasing. Assuming the installment is PLN 1,500, the company deducts PLN 285 from tax (assuming a flat tax of 19%). In this case, the actual cash outflow from the company will be PLN 1,215. What will the deduction look like for a loan? The cost for the loan will be only interest. Using the example of a car for PLN 65,000, we can assume an installment of around PLN 2,000, with interest beginning at around PLN 800. This means a tax shield at a cost of PLN 150. Cash outflow is therefore higher in the case of loans and amounts to PLN 1850. This amount will increase over time, because the interest installment on the loan will decrease as a result of paying off our debt to the bank. The amount of tax shield will of course decrease with the installment.