is a long-term lease relationship based on separation of legal ownership and economic ownership of the leased object, when the lease term is close to the economic lifetime of the object of leasing. The main aim of financial leasing is to re-finance the entire or significant part of acquisition cost during the lease term with simultaneous economic use of the object of leasing by the lessee, and the lease relationship ends upon transfer of legal ownership of the object of leasing from the lessor to the lessee, however, first after settlement of all lessee’s obligations towards the leasing company.
Advantages of financial leasing
are related mainly with the way of acquisition of the object of leasing, when the person interested in the object of leasing does not need to have the whole cash at the beginning. Relatively small investment in the amount of the increased advance instalment is sufficient. Leasing is a fast and available way of financing and it is not that demanding on paperwork such as bank loan. Leasing agreement can be usually concluded directly at the point of sale where you chose your object of leasing.
from the economic point of view, it can be broadly defined as a lease for a period that is usually shorter than the lifetime of the object of leasing. In principle, the object of leasing remains property of the lessor (this can be producer, specialised leasing company, or other legal entity or also natural person) after termination of the lease agreement. In the case of operative leasing, the lessor often offers also various ancillary services in connection with the leasing in order to make it more attractive (servicing, insurance, substitute vehicle in the case of operating leasing of a car and the like). Machines and machinery are exception; in their case, operative leasing can be used even without any ancillary services.
Advantages of operative leasing
operative leasing is less demanding on cash-flow, since clients pay no or only a minimum increased advance instalment (the so-called advance payment) at the beginning of the leasing. In the case of operative leasing, the minimum lease term is not determined and that allows clients to innovate property faster. In addition to these advantages, clients appreciate also complete management of vehicle fleet which is intended for lessees who want to keep ownership title to the vehicle or who have a vehicle fleet which is subject-matter of financial leasing and they want to increase the effectiveness and optimise administration and management of the vehicle fleet. In such a case, the leasing company provides servicing exactly according to the client needs and requirements, what means savings of personnel and administration costs for the lessee.
a document to be signed by the lessee with the leasing company. Leasing agreement regulates the relationships between the lessee and the leasing company, defines mutual rights and obligations and, on the basis of leasing agreement, the client acquires the right to use the object of leasing and, for that, he pays rent to the leasing company. Leasing agreement also contains instalment schedule.
an exact breakdown of instalments stipulated in leasing agreement. Apart from the amount of instalments, the instalment schedule also contains exact deadlines when these instalments fall due, name of the financial institution and account number. The instalment schedule constitutes an inseparable part of leasing agreement.
Object of leasing
property which the lessee leases from the leasing company and pays rent to the leasing company for that service. The object of leasing can be passenger vehicles, utility vehicles and lorries, machines, technology, computers, but also boats, aircrafts and real estates; in simple terms, objects of long-term consumption.
leasing company which leases property to the lessee. It is owner of the leased property and the lessee pays rent to the leasing company for leasing of the object of leasing. After termination of leasing agreement, ownership titles, depending on the type of leasing, are transferred to the lessee or remain with the leasing company.
client of the leasing company who is using the object of leasing on the basis of a leasing agreement and pays rent to the leasing company for that. Lessee can be citizen, entrepreneur, trading company. After the end of the lease, the lease agreement is terminated in the case of operative leasing and, in the case of financial leasing, the object of leasing is transferred to the lessee and lessee becomes owner of the object of leasing.
an entity where the lessee choses the object of leasing. On the basis of an agreement, the leasing company pays purchase cost for the object of leasing to the supplier. The supplier subsequently supplies the object of leasing to the lessee.
Purchase cost – price of the object of leasing for which the leasing company acquired the object of leasing. The lessee pays purchase cost in the form of the first increased instalment and instalments during the lease term. It is the price stated in the invoice (tax document) for the object of leasing from the seller.
price of the object of leasing for which the leasing company acquired the object of leasing. The lessee pays purchase cost in the form of the first increased instalment and instalments during the lease term. It is the price stated in the invoice (tax document) for the object of leasing from the seller.
Increased advance instalment (the so-called advance payment)
sum of money to be paid by the lessee at signing of the lease agreement. It represents a certain percentage of the purchase cost of the object of leasing. Leasing companies usually set the advance payment in the range from 10%, 20% up to 70%. The advance payment is also used as a certain form of guarantee for execution of the business case. In general, it applies: the higher the advance payment, the lower the monthly leasing instalment.
Residual value/Selling price
sum of the purchase cost remained unpaid by the lessee in the form of instalments and advance payment. That is to say that it represents the difference between purchase cost, advance payment and the sum of principals from all instalments. The residual value is then paid by the client at the end of the leasing in lump sum; it can be zero, determined as a fixed sum or as a percentage. Higher residual value decreases the value of regular instalments. After payment of selling price, ownership title to the object of leasing passes to the leasing lessee after the end of the agreement, unless the leasing lessee has other unpaid open items related to the leasing agreement.
payment paid regularly (monthly, quarterly) or irregularly (seasonally) to the leasing company. Its amount is agreed in the leasing agreement and represents rent for the possibility to use of the object of leasing. It contains a part falling on payment of principal and on payment of interest. In some cases, the instalment can also include insurance. Leasing instalment is paid by the lessee on the basis of invoices or instalment schedule according to the leasing agreement. It can be constant or uneven during the entire lease term.
is a sum connected with paperwork at conclusion of the leasing agreement; it is paid by the lessee to the leasing company at the beginning of the lease relationship. It is either determined as a fixed amount or as a percentage of the purchase cost.
is period during which the leasing company and the lessee have a contractual relationship. During that period of time, the lessee pays rent to the leasing company and uses the object of leasing. The minimum lease term is determined by law and depends on the period of depreciation of tangible fixed assets and their classification in depreciation class. It always has to represent at least 60% of the depreciation period in the relevant depreciation class.
Early termination of leasing agreement
is a non-standard way of termination of the agreement made on the basis of a written request of the client/lessee or due to theft of the vehicle, total accident or due to termination of the agreement by the leasing company due to breach of general terms and conditions of the leasing agreement by the client.
means change of entity under the financing agreement (transfer is possible in the case of financial leasing and loan); this change is carried out on the basis of a written request of the applicant under the financing agreement and it is subjected to approval.
the object of leasing possessed by the lessee is bought by the leasing company which leases the object of leasing back to the lessee. Despite the fact that the object of leasing is still being used by the lessee, ownership title to the object of lease passes to the leasing company in the case of this relationship. It is used mainly to overcome problems with lack of funds.
which is provided by leasing companies can be described as a specific-purpose loan for acquisition of a motor vehicle. Despite the fact that the economic owner of the object of financing is the client, the leasing company uses the object of financing as a form of guarantee. The condition for conclusion of loan agreement is conclusion of an Agreement on Security Transfer of Ownership Title. If the client does not comply with his obligations towards the leasing company, the leasing company will exercise its rights under the Agreement on Security Transfer of Ownership Title, whereby the ownership title to the vehicle will pass to the leasing company.
from the legal point of view, it regulates the contractual relationship between provider of the loan (lender) and the client (borrower). It includes general terms and conditions containing the rights and obligations of both contracting parties.
regular payments paid in the amount and within the deadline agreed in the agreement. They usually include insurance premium.
RPMN – Annual percentile rate of cost
percentage expression of costs to be spent by the client on the acquisition of the object of leasing or loan; it allows an easy comparison of consumer loans or leasing offers. For a client, the most favourable loan/leasing is usually the one with the lowest RPMN at the same input data (the amount of the loan, the term for which the loan is to be granted, fees related to the acquisition of the loan, etc.).
is purchase of property on the basis of purchase agreement with gradual repayment of the obligation. The condition for conclusion of instalment sale agreement is conclusion of Agreement on Security Transfer of Ownership Title. In this case of financing, economic ownership passes to the client upon takeover of the object of the agreement.
MTPL – Motor third-part liability insurance
insurance of liability for damage caused by operation of a motor vehicle identified in the insurance policy.
KASKO – Motor hull insurance
insurance of liability for damage caused by operation of a motor vehicle identified in the insurance policy.
Supplementary insurance to KASKO
allows additional insurance of some complements, namely: insurance of baggage, windscreen, substitute vehicle, as well as accident insurance for people (death and injury).
GAP – financial loss insurance
secures compensation of financial loss in the case of total damage, due to accident or theft. This insurance cover provides security that another sum will be paid in addition to the insurance benefits from accident insurance. It helps to cover the difference between the general price (i.e. the price at the time of insured event) and purchase cost of the vehicle which cannot be paid from accident insurance in the case of total damage or theft. The GAP insurance provides financial means for repeated purchase of a vehicle.
CPI – Credit Protection Insurance
insurance of the ability to repay the financial obligation arising from leasing/loan agreement. This insurance cover provides protection against financial difficulties which could surprise client in unexpected situations in life (inability to work, invalidity, death, loss of job).