Buy a car through leasing

Options for leasing a car and more in the Czech Republic

John Mohr

Written by John Mohr Published on 23.01.2012 09:37:51 (updated on 23.01.2012) Reading time: 5 minutes

Financing long-term access to an automobile or other equipment is generally achieved using a long-term financial loan or leasing agreement.  Leasing agreements are of three general types: financial leases, operating leases, and lease-backs. Loans finance the ownership of the financed object, while leases finance access to the use of the financed object. Among leases, the financial lease almost always provides an option of purchase at the lease end, while both operating and lease-back arrangements are more about securing access or use of the leased asset.

The provider of the finance (lender) provides finance over a period of years to the owner of the asset. Generally, the loan is arranged just prior to the acquisition of the asset and the lender sends the finance directly to the seller of the asset. The owner bears full risk of its loss or damage. The owner depreciates the asset on its books, retains full control over the use of and changes to the asset. Generally, the loan is not secured by the asset. A loan might be acquired to cover all or a part of the total financing, and might vary from one to three or more years.

The owner pays all machine maintenance and other costs, such as in automobile fuel, road tax, mandatory insurance, vignette, etc. The owner carries the asset in its books and depreciates it over several years in accordance with the law on income tax. VAT is fully refundable on acquisitions by VAT-registered businesses since April 2009.

The lessee generally pays a deposit (or one-time initial payment of the acquired assets) and commits to a period of one to three or more years. The client makes a flat monthly payment that covers property insurance, interest, and the principle acquisition price of the leased object. VAT on the lease service and the acquisition price fully refundable on acquisitions by VAT-registered businesses since April 2009.

Financial Lease
The provider of finance (lessor) confers long-term use of the object being financed to the operator (lessee) of the equipment lease with the expectation of transferring ownership to the lessee at the end of the term for a minimal fee. It is unlikely that the lessee is looking to upgrade to newer models soon, is able and willing to meet its maintenance and repairs needs on its own.

The lessee pays all machine maintenance and other costs, such as in automobile fuel, road tax, mandatory insurance, vignette, etc.

Operating lease
The provider of finance (lessor) confers long-term use of the object being financed to the operator (lessee) of the equipment, without transferring ownership. At the end of the lease period, the object is returned to the owner, who either sells or leases the unit to another client.

The lessor pays all maintenance and insurance costs, road taxes, highway “vignette” … while the lessee pays the fuel.  Risk of loss and obsolescence are also borne by the lessor.

Operational leasing is generally advantageous for entrepreneurs who are unwilling or unable to invest in rapidly evolving technologies and fashion trends (computers, communications) with their own funds. They include 24-hour repair and maintenance, temporary replacement vehicles, guaranteed access to technological infrastructure, such as certified technicians, expensive diagnostic and repair equipment and other advantages that are otherwise not easily affordable to a small company. Additional costs, such as insurance, maintenance, etc. may need to be included in any analysis between loan and lease products to obtain comparative results.

Lease-back is a method of finance in which the owner of an auto or other piece of equipment sells the (used) object to a financial institution that then leases it back over a long-term under an operating lease. This is often done to achieve specified balance sheet and performance ratios or to free up cash to solver working capital issues within the company.

The primary costs of investing into automobiles or equipment include the 1) directs costs of finance, usually interest and administration fees. This can be compared across products using an RPSN calculation (see below); 2) related running costs; 3) the additional return from other projects forgone to invest in the asset project; 4) the cost of infrastructure to support the operation of the asset, whether made directly or acquired indirectly through the lessor.

The annual percentage rate of cost (Roční procentní sazba nákladů, or “RPSN”), expresses in a single number the bundled finance rate of interest and fees over the entire life of the transaction.

Doing the deal
There are a tremendous number of leasing and loan institutions to choose from in any market. Do your homework – make sure you compare the factors that make a difference to you: cost, money down, service ….

One of the most important tasks is to build an excel sheet that shows your monthly cash flows over the life of the lease … include the costs of finance as well as the other related costs. 

The financial institution is going to want the following from you:
• Certificate of incorporation, business license
• Proof of identity of the authorized person
• Tax return or income statement, balance sheet

The lender or lessor will likely seek a copy of a recent bank statement or proof of a current account, information on current credit and leasing agreements drawn loans and other balance sheet and off balance sheet liabilities or review claims and liabilities (with indication of debtors and creditors).

Interest rates depend on the property class, risks, and the premium charged by the leasing company. Of course, the Czech National Bank will provide the base rate.

When arranging the lease, the tenant must pay the majority of advance payment, i.e. a one-time initial payment of the acquired assets. This is the conclusion of the loan does not occur. There are no leases, however, with zero deposit. The lease also usually handled things currently on lease and insurance (not for credit).


John W. Mohr
is director of CFO2GO entrepreneurial advisory, delivering online and outsourced accounting, domiciliary and financial advisory services to internationally-financed businesses and expats in the Czech Republic.


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