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Reverse car leasing, advantages and risks

If the simple terms are complied with, the lessee does not run any risk, on the contrary, it may use the various immovable property, transport or equipment on favorable terms for the period of time it requires.

The terms, nuances and benefits of leasing are clear to every resident of Latvia who has had a small deal with financial products or cars. But a brand new type of leaseback, called “reverse” or “reverse”, has recently emerged, promising even greater benefits to its users than the traditional form of long-term lease.

What is Reverse Leasing?

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In reverse or reverse leasing, the seller of the car and the lessee are the same person . In other words, you are selling your car to a leasing company and you are immediately leasing it at the end of the lease term. In addition, the seller and the lessee first receive money equivalent to the value of the car and then undertake to pay the monthly lease payments.

In such a financial relationship, the location of the car and its actual user remain unchanged. Only the formal owner and the form of legal relationship change. In financial institutions, reverse leasing has become the only right solution when a client has approached a lender for financial assistance but his profile has not satisfied any program in the bank. This way, the customer also gets a decent amount of money for his car and still has the right to use his usual car.

Advantages of reverse leasing

Although reverse leasing has features in common with both individuals and legal entities, each type of customer receives a special advantage when it is drawn up .

Advantages for individuals:

  1. Receipt of money.
  2. The car is being depreciated at an accelerated rate.
  3. You can delete the value of the car according to a flexible schedule. Often leasing companies are compliant and allow deferred payment.
  4. Economy on property tax.
  5. The customer will not have to provide additional documentation in order to obtain a leaseback.
  6. The lessee (car seller) can avail of existing subsidies or discounts offered by the leasing program.

Advantages of reverse leasing for companies:

  1. Possibility of tax relief.
  2. Removing a vehicle from your business balance.
  3. Supplementing current assets by selling a car.

In a reverse leasing system, it is much easier for a natural person to obtain this procedure, and the company will have to submit its articles of association and financial statements.

Reverse leasing risks

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Of course, many business people will find such a scheme attractive and attractive, but the State Revenue Service will follow up on the need for reverse leasing. If he suspects that the program has been designed to improve the financial position of the firm’s manager, the company will have to prove its intentions in the courtroom. If you cannot prove that the money from the sale of the leasing object and the tax savings have been spent solely for the benefit of the company, you run the risk of losing your former business.

All the risks directly related to the reverse leasing concern not only the seller – the lessee himself but also the leasing company. All possible risks and problems can be circumvented in one case only : keeping all accounting clear, without hiding it from the controlling authorities.

What objects are you looking for in a reverse lease?

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In this matter, reverse leasing is no different from your usual “nephew”, because why not have a financial organization buy low-liquid assets or narrow-minded equipment, because the full redemption may not even be! Therefore, the advantage of reverse leasing is given to the vehicles (with a certain release period).

Other properties include real estate that has a large depreciation reserve. Reverse leasing for real estate entrepreneurs is extremely rewarding for entrepreneurs – they get their value, continue to use the usual square meters, and no longer pay real estate tax.

In order to assess the ability of one or another property to become a subject of reverse leasing, creditors assess it against three criteria: liquidity, price, condition.

What’s Better: Reverse Leasing or Credit?

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The main “plus” in reverse leasing is the receipt of a substantial amount of money and the ability to continue to use the item sold (and leased back). In a situation where you or your business need money urgently, reverse leasing can be equated with a magic wand.

The money you get from selling a leasing item can be used to remedy the situation if you make a mistake in running your business and face an almost insoluble problem. A little later, when the situation improves, you will be able to easily repay the leasing, as the company will start operating successfully with maximum profit. You will also “lighten up” yourself on tax payments.

If you are looking for money to improve your business, reverse leasing will be both more profitable and more beneficial than credit . In addition, the transaction will not be problematic if the object is liquid and interesting for the leasing company.

However, reverse leasing also has another side that differentiates it from regular credit: when you make a deal, ownership of the object passes to the leasing company. If the lessee is no longer able to meet its obligations, the lessee will easily be deprived of the leasing property without unnecessary litigation. When viewed from the prism of the credit facility, the creditor party takes a long time to litigate until the property is finally forfeited to the collateral.

That is why reverse leasing requires its users to be as cautious as possible and to execute the transaction only if they are fully confident that the contract object or individual can be redeemed without difficulty.

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