Company Car Loan or Car Leasing

What types of cars do entrepreneurs register?

Only 9.3% of the passenger cars registered in Latvia have been registered by legal entities. The statistics are, of course, the opposite for trucks and buses. However, passenger cars registered in a company’s name are most often true “workhorses”—vehicles whose operating efficiency is balanced against their price, without consideration for the car’s appearance or additional features. This also explains their colour: company cars are most often white. As for the most popular models, these are the Volkswagen Caddy, Dacia Duster and Škoda Octavia. Cars registered in a company’s name are generally characterised by fairly high annual mileage and technically wear out within just 5 – 8 years. This is also why entrepreneurs are more interested in new cars and purchase them almost four times more often than private individuals. If high mileage is genuinely expected, a new car can also save money on repairs, which is why car leasing is often useful in such cases.

Should you buy a car in your own name or in the company’s name?

This question is difficult to answer because every situation is individual and requires time and careful consideration. Nevertheless, it can immediately be said that operating a car is more complicated and expensive for entrepreneurs than for private individuals. This is also one of the main reasons why so few passenger cars in the country are registered to legal entities. Here, the issue of recording and registering business expenses is also important—if a car is registered in a private individual’s name, it may not be possible to record the car’s expenses as business expenses. Alternatively, in such a case, the car may have to be lent to the company for use and its mileage/fuel consumption officially recorded. Likewise, if the car is purchased with the help of a loan, it is necessary to check whether the company meets the criteria for being granted a car loan or car leasing.

What is the difference between a car loan and car leasing?

Although to an uninitiated person a car loan and car leasing may sound like the same service, they are different. A car loan is most often used when purchasing a used car in the mid-price range (usually between €4,000 and €10,000). With a car purchased in this way, the buyer immediately becomes the owner and is essentially subject to no restrictions. A car purchased through leasing, on the other hand, must meet several criteria: for example, it must be worth more than €7,000 (usually new cars are purchased through leasing); if the car is used, it must be valued; and the vehicle is registered in the name of the lessor, with the buyer becoming merely the vehicle’s registered keeper. This noticeably limits the borrower’s ability to deal with the car—it cannot be sold or repainted, and in some cases it may not even be taken out of the country (especially beyond the EU borders). In addition, comprehensive KASKO insurance will most likely be mandatory for a car purchased through leasing. Compared with other loans, both car loans and car leasing are characterised by fairly low interest rates, although leasing is more advantageous than a loan.

However, it should be remembered that different lenders offer different terms and interest rates. To identify the most advantageous lender and terms, lenders’ offers should be compared. The Sortter platform conveniently enables this, as its main area of activity is—comparing loans. Sortter has operated in Latvia since 2020 and helps several thousand visitors every month— both private individuals and entrepreneurs—to compare different types of loans.