Renting or Buying?

Escrito el 11 abril 2010 por Jesus Guerro en General

The choice between opting for the acquisition of an asset, let say a vehicle, between the financial strains of Renting or Buying, is common among individuals and companies and requires a detailed analysis of the factors that may determine the choice decision appropriate. We will try here to specify what aspects determine the convenience of this decision in either direction.
First, the renting is an option only for potential economic benefits in case of companies, never individuals, except in those cases where his/her inability to access a loan, becoming a feasible option for access to a vehicle under short term Hiring (not renting), usually concretized in monthly periods, relatively more expensive than Renting fee but with the option for the customer, to supply the vehicle at the end of any monthly period.
Many are those who think that a Renting contract does not require a severe study on the solvency of the customer by the selling entity. It is a false. We are talking anyway about a good to be paid by the banking entity, bearing the same considerations that may be found to control the granting of a traditional loan.
The major differences between both options stem from accounting and tax impact. In case of Renting, the vehicle does not belong to the company, although it is responsible at all times, on full payment of the contract. Each renitng fee may be fully booked as an expense and the VAT should clearly appear broken down in the invoice. The fee depends largely on 3 factors: the value of the model, the number of kilometers per year and term of the contract (1-5 years). It is increasingly common to standardize the choice of All Inclusive Assurance, Complete Maintenance with wheel changes, in any current Renting contract.
In this sense the customer forgets the efforts to make the vehicle after signing the contract, being all these services included in the fee for renting.
By contrast, in a Purchase Option, the vehicle becomes part of the assets of the company, however the law only allows vehicles to amortise during 76 months of professional use, so that every year,deducting barely 1 / 6 of the net value of acquisition. Our tax relief will also set the monthly interest payments, if we opted for a loan to finace purchase, as well as the possibility to offset the total VAT within the current fiscal quarter, being from this point of view an interesting option for cash flow.
Option of Renting is generally more interesting for those users who make a very high number of miles in which case they can be traded “unlimited mileage”, who prefer not to increase its liability account (the pending payment of a renting contract is not listed as debt in balance) or because of the number of vehicles in fleet will not be allowed to heavy debt from financial institutions. It is very important to set estimated miles data the more accurate as possible with real use, otherwise pensalisations will get contract proportionaly more expensive by surplus miles.
Once we know the main differences between them, the answer is in your notebook, lets figure numbers up… !


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