How businesses can avoid loans? And why don't they?

[Sunil-123]

Our company has to buy a car worth 25000 euros. Company has the money to buy the car with cash or just take a loan for a short period for 10-15 thousand euros.

But company has taken a loan and apparently company will be paying around 2000 euros/year just in interests. So more than 6000 euros over a period of 3 years. Interest paid is tax deductible but it will cover only a fraction of the 6000 euros. So how the comapny could avoid paying all this unnecassary interest?

May be I am missing something because I don't own the company or don't make the decisions. But I am confused so want to hear if anybody knows any explaination.

[Pursuivant]

Its the difference between "now money" and "then money", also the depreciation value of the car. Hence leasing. It might "cost" more, but in bookkeeping its less cost.

Also, its cash flow issue. If you have 25.000 in the bank, or a car in the yard. Your thingamajing-gizmo breaks up. Now, your business is bust becauseyou can't gizmo thingamajingies, or then you sell the car to get a gizmo, and can't deliver as you don't have a car...

Also, if the car breaks... is it your car or their car? If its your car, you need to do allthe work in maintaining the fleet. Sounless ypu have someone doing all that, you lease, and if their car breaks, you get a new one.

[Sunil-123]

No, there is no leasing. It's just a purchased car. But purchased totally on credit.

[Rosamunda]

Did the loan come from a bank (which one?) or from the car dealer? Was it a new car or a secondhand one?

Sounds like a huge amount of interest on a relatively small sum of money. If the company has the money sitting in its current account and has no other need for it, then I don't see how it would make sense to take out an expensive loan. On the other hand, companies do need cash (eg to pay VAT to the State) so it is never a good idea to use up too much liquidity.

Leasing a car is a good way of avoiding a loan. Alternatively, a business could ask its employees to use their own cars and then refund them the mileage.

Paying cash or loan does not directly affect profitability since the car is put on the balance sheet (as an asset) and depreciated over several years (its useful lifetime). But the interest payments on the loan would be an expense and decrease profitability. Sometimes companies are happy not to show a profit.

Personally I would rather buy a better car than give interest to a bank, if I had the cash on hand.

[Sunil-123]

The car is a new car. Exchanged for the older car. And after subtractig all (older car's value, Alv etc) the sum left to be paid was 24000 euros. And that is through the car dealer and to be more specific VW. The paper says interest rate is 1.9% . I really don't how this interest rate is calculated. But I just multiplied the monthly istallment with 36 and the answer is 30000 euros.

Company might not have been able to pay 24000 but it could easily pay 12-15k with still enough money left in the current account.

Does 1.9% translate as 6000 over a period of three years? Or is it a normal interest rate and I need to make all the calculations again?

[onlyforgame]

The car is a new car. Exchanged for the older car. And after subtractig all (older car's value, Alv etc) the sum left to be paid was 24000 euros. And that is through the car dealer and to be more specific VW. The paper says interest rate is 1.9% . I really don't how this interest rate is calculated. But I just multiplied the monthly istallment with 36 and the answer is 30000 euros.

Company might not have been able to pay 24000 but it could easily pay 12-15k with still enough money left in the current account.

Does 1.9% translate as 6000 over a period of three years? Or is it a normal interest rate and I need to make all the calculations again?

Hmm, Interest rate 1,9% on the total amount that your company is in debt, which means that the sum you will pay out after 3 years will be = 24000* (1+1,9%)^3 =25394,16e
So everymonth the company has to pay about 705,40e for the car. I suppose the rest will be the car insurance and tax?? if they take care of it. Otherwise I don't really know

[Sunil-123]

They are not going to take care of any insurance or tax.24000 is the grand total including everything

[Rosamunda]

http://www.volkswagen.fi/fi/lisapalvelu ... oitus.html
Is this the deal? (No rates given here.)

Osamaksurahoitus
Osamaksurahoitus on järkevä rahoitusmuoto, kun yrityksesi haluaa omistaa auton. Sen avulla yritys voi ostaa uuden tai käytetyn henkilö- tai hyötyauton ja maksaa sen maksuerissä.

Osamaksurahoitus on edullinen vaihtoehto pankkilainalle, koska yritys saa sen kiinteällä hinnalla koko sopimuskaudeksi. Auton omistusoikeus siirtyy yritykselle, kun viimeinen kuukausimaksu on maksettu. Tämä mahdollistaa myös sen, että muuta vakuutta auton lisäksi ei tarvita.

Sopimuskauden pituus valitaan sen mukaan, mitä autosta halutaan maksaa kuukaudessa. Sopimuskauden loppuun voidaan jättää viimeinen suurempi erä, jolloin kuukausimaksuista tulee huomattavasti pienemmät kuin perinteisessä osamaksurahoituksessa. Yrityksen oma vaihtoauto voi toimia vaadittavana omarahoitusosuutena.

Try putting the numbers in a calculator like this one.
http://www.calculator.net/auto-loan-cal ... d&x=69&y=9

Anyway - your numbers do not add up. Something is wrong. Are you absolutely sure the repayment period is 36 months? Or the interest rate is wrong. Or they got cash back on the trade-in and took a loan for the full amount.

[Upphew]

Anyway - your numbers do not add up. Something is wrong. Are you absolutely sure the repayment period is 36 months? Or the interest rate is wrong. Or they got cash back on the trade-in and took a loan for the full amount.

Or there are costs that are not calculated to the interest: account management fee, billing fee etc.