Auto Leasing in Romania: Advantages and Disadvantages

Auto leasing is an increasingly popular alternative for purchasing a car, sitting between traditional bank financing and long-term rental. This form of funding lets you drive the desired vehicle for a predefined period (usually between 2 and 5 years), paying a monthly rate calculated based on the car’s depreciation rather than its total value.

Deciding between leasing and other auto financing options isn’t straightforward, involving multiple factors to analyze carefully. The contract is customized based on estimated annual kilometers, financing duration, and payment structure, and the total cost depends on the vehicle’s initial value, its estimated value at the end of the contract, and mileage limits.

Types of auto leasing available

Finance lease

Finance lease is the most common form and functions similarly to a bank loan. In this case, the client practically purchases the car through a loan that must be repaid in fixed installments. Over the contract period, the leasing company officially owns the vehicle, and transfer of ownership occurs only at the end.

The most important feature of a finance lease is that, although legal ownership belongs to the leasing company, all risks and rewards pass to the client from day one. This means you are responsible for any damages, maintenance, and depreciation of the vehicle.

Operational lease

Operational lease is less common and resembles more a long-term rental. In this case, the client never becomes the owner of the vehicle, the contract being one of use.

At the end of the period, if you want to purchase the car, you will need to negotiate a separate price with the leasing company. The monthly rate is calculated exclusively on the basis of the estimated depreciation and the supplier’s profit margin, making this option more financially predictable.

Key differences between leasing and auto loan

Vehicle ownership

The most important difference concerns the ownership right. In the case of leasing, the leasing company remains the legal owner for the duration of the contract, with transfer only after all obligations are paid. With a bank loan, you become the owner from the start, the bank having only a lien on the vehicle.

Early repayment

Leasing contracts impose legal restrictions – you cannot repay early in the first year of the contract. After this period, early repayment is possible but may incur penalties. Bank loans offer more flexibility, allowing early repayment at any time.

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Tax considerations

For legal entities, leasing offers significant tax advantages — the payments can be fully deducted as operating expenses, whereas with a loan only the interest is deductible.

How to choose the optimal financing period

The contract period is crucial for the total cost of the lease. A longer period reduces the monthly payment, making the payments easier to manage, but increases the total cost due to interest accumulated over a longer period.

Advantages of a shorter period

A 2-3 year term offers several benefits:

• Minimal maintenance costs, the car still under warranty
• Lower risk of major failures
• The possibility to change the vehicle before issues tied to age appear
• Lower total costs due to interest

Disadvantages of a longer period

4-5 year contracts can create uncomfortable situations:

• Total cost with interest rises significantly
• Higher risk of failures after the warranty expires
• Inability to sell the vehicle if circumstances change

Down payment and residual value - key factors

Initial down payment

Leasing companies set a minimum down payment (20-30% of the vehicle value), but a larger down payment brings benefits:

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• Lower monthly rate
• Reduction in total interest costs
• Improved risk profile for the lender

Residual value

Residual value is the amount you pay at the end of the contract to become the owner. This can vary between 0% and 50% of the initial value:

Higher residual value (30-50%):

• Lower monthly rate
• Financial effort concentrated at the end of the contract
• Risk of the end-of-term market value exceeding the predicted value

Lower residual value (0-15%):

• Higher monthly rate
• Costs distributed evenly over the contract period
• Greater security at the end of the contract

Total cost analysis

Interest and APR (Annual Percentage Rate)

For comparing offers, use the APR, which includes all costs:

• Base interest rate
• Administration fees
• Fees for related services (registration, appraisal)
• Mandatory insurance

Common additional costs

• Administration fee: 1-3% of the vehicle value
• Registration tax: 200-500 lei
• Vehicle appraisal: 150-300 lei
• Mandatory CASCO insurance: variable depending on vehicle and profile

Options to exit the lease contract

Early repayment

After the first year, you can repay early, but this involves:

• Payment of the remaining balance
• Penalty fee (2-5% of the remaining balance)
• Loss of some tax advantages (for legal entities)

Assignment of the contract

Transferring the contract to another person is possible, but:

• The new beneficiary must meet eligibility criteria
• The price calculation may be unfavorable to the assignor
• The procedure involves additional administrative costs

Vehicle return

A simple return does not relieve you of obligations – if the market value is below the remaining balance, you will be responsible for the difference.

Advantages of auto leasing

Access to newer vehicles

Leasing lets you drive newer and better-equipped cars than you could buy:

• Vehicles under warranty for the entire contract period
• Modern safety and comfort technologies
• Reduced emissions and optimized fuel consumption
• CASCO insurance usually included

Lower monthly payments

Payments are calculated on estimated depreciation, not the total value:

• Monthly payments 20-40% lower than a loan
• Better cash flow for legal entities
• Ability to access vehicles from higher segments

Tax advantages for companies

• Payments are fully deductible
• VAT recovered monthly
• Simplified accounting
• Elimination of depreciation risks

Disadvantages and risks of leasing

Total cost over the long term

Although the payments are lower, the total cost can be higher:

• Interest calculated over the entire period
• Lack of an owned asset
• Ongoing payments if you replace vehicles frequently

Limitations and restrictions

Mileage limit:

• Overage penalties of 0.1-0.5 lei/km
• Unused kilometers do not roll over
• Difficulty in accurately forecasting needs

Vehicle condition:

• Obligation to maintain the vehicle in good condition
• Additional costs for excessive wear
• Periodic inspections required

Reduced flexibility

Exit from the contract involves:

• Substantial penalties
• Obligations that can equal the remaining contract value
• Inability to sell the vehicle

When is leasing worth it

Leasing is advantageous in the following situations:

For individuals:

• You want to drive new cars regularly
• You prioritize low payments over long-term ownership
• You don’t drive many kilometers annually
• You prefer cost predictability

For companies:

• You benefit from tax advantages
• You want to optimize cash flow
• Your fleet requires modern technologies
• You want to eliminate depreciation risks

When to avoid leasing

Avoid leasing if:

• You drive over 25,000 km/year
• You want to keep the car long-term
• Your cash flow is unstable
• You prefer to own tangible assets
• You are the type who modifies or personalizes vehicles

Recommendations for an informed decision

1. Calculate the total cost of ownership (TCO) for all options
2. Estimate annual mileage realistically and add a safety margin
3. Compare APR for all available offers
4. Analyze your tax situation and potential benefits
5. Assess long-term financial stability over the contract period

Auto leasing can be an excellent solution for those who prioritize driving new vehicles and benefit from tax advantages, but it requires careful analysis of needs and long-term financial possibilities.