What is Car renting?

Find out about car renting: what it is and how it works.

There are several ways to acquire a car: you can purchase a vehicle in your own right, rent it for occasional use, or take out a long-term rental with a leasing or renting service. 

In this article we explain what renting means, the key points of the car rental contract, and the tax benefits it can offer.

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What is renting?

Renting is a long-term car rental contract (it has a minimum duration of 24 months and a maximum of 60 months) whereby a company or a private individual can use a car of a specific model and with a specified mileage in exchange for a monthly payment.

Key aspects of car renting

Taking into account the definition of car renting, it is important to bear in mind that it is basically a vehicle rental service with certain characteristics that distinguish it from other types of rentals, such as the target audience, the expenses included in the rental contract, and what happens to vehicles at the end of the contract. 

Firstly, it is important to know who can acquire a car through renting. Until recently, companies and the self-employed opted for renting as a solution to their operations, but this option is becoming increasingly popular among individuals

Another aspect that distinguishes renting from other leasing options is the expenses related to the contract. This includes: 

  • All the expenses associated with the purchase of the vehicle (e.g. the registration tax). 
  • Maintenance and inspection service, as well as tire changes. Normally, renting contracts usually include a clause that requires the driver to bring the car in for inspection every certain amount of time. These mandatory inspections are included, as well as any required repairs in the event of an issue. 
  • Roadside assistance
  • Insurance
  • Fine handling service until all administrative appeals have been exhausted. 

Considering everything that the renting service includes, it is no surprise that it is such a popular option for both businesses and individuals. However, it must be taken into account that there are a number of expenses that renting does not include such as refueling, fines that cannot be successfully appealed, and compensation for damages in the event of driver negligence

Lastly, there are some differences between renting and leasing. The most important aspect takes place upon finalizing the contract. When renting, the renter can extend the contract or return the car, while leasing offers a third option: purchasing the vehicle at its residual value.

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Tax benefits for companies and individuals

The second reason why both businesses and individuals decide to acquire a car through a renting contract, instead of buying it, is that this system offers certain tax benefits. For the Tax Agency, a car purchase is an investment that is not deductible from personal income tax for self-employed workers and individuals. On the other hand, renting is considered a rental that can be included in operating costs, meaning it is fully deductible in either case. That's the greatest advantage of this system: you can deduct the full monthly renting payment from Corporation Tax and Personal Income Tax. 

Furthermore, you can typically deduct 50% of the VAT applied to the payment; although if you can show that the vehicle is used exclusively for professional activity, 100% of the VAT can be deducted. 

In short, when it comes to having a vehicle, many individuals prefer the vast advantages offered by a renting service. At BBVA we offer our customers different car renting options with all the maintenance and insurance costs included. If you would like to know more about this service, visit bbva.es or go to any of our branches.

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