Flex Leasing is a relatively new way of financing a car which allows you to avoid paying all of the 180% Danish vehicle tax registration upfront. Flex-leasing allows you pay just a small percentage of the registration tax for every month you lease the car. When Danish registration tax typically represents up to 2/3 of the price of the car, flex-leasing greatly reduces;-

 

• The amount of cash you will need to borrow or bind in a car by 66%

• The amount of cash you will normally need to pay upfront to secure the financing by 50%

• The amount you will eventually lose on depreciation.

 

When flex-leasing, registration tax is paid in the following way:-

 

• If the vehicle is between 0 and 3 months old, 2% of the full registration tax amount should be paid per month

• If the vehicle is between 3 and 36 months old, 1% of the full registration tax amount should be paid per month 

• If the vehicle is more than 36 months old ½ % of the full registration tax amount should be paid per month

 

In addition to the monthly registration tax payment percentage, the Danish tax authorities also require that interest be paid on the whole amount of registration tax owed. The interest rate is set by the Danish National bank twice annually. (4% approx)

 

Flex-leasing provides substantial financial benefits especially when flex-leasing expensive luxury cars that are over 3 years old.  In principle, the more valuable the car the greater the potential saving. 

 

A maximum of 30% pre-payment can be made upfront.

*Note - It is not possible or legal to pay 100% of the tax free value of the car upfront and flex-lease the registration tax amount only!

 

The difference between traditional leasing and flex-leasing

 

Traditional private leasing is based on the principle that the leasing company takes the car back at the end of the lease. The leasee agrees to return the vehicle in good condition with no dents, scratches and or other damage and with no more Km's driven than is agreed in the lease. If the car is not up to the agreed standard when returned, then the car will be repaired at the leasee's expense and extra mileage charged at a pre agreed rate per km (stated in the contract)

 

From the start, the leasing company calculates and decides the maximum potential loss from depreciation on the car over the leasing period and adds an amount equivalent to, or slightly greater than this amount, into the leasing contract. The lessor takes all of the risk on the depreciation, but they also take all of the profit if the car is finally sold for more than calculated. Danes typically look after their cars so traditional leasing can be a lucrative business.

 

One of the main advantages with flex-leasing is that the leasee only pays the actual depreciation, and not a pre-calculated amount. For example, a depreciation amount of 30% is set and agreed for the first year of the contract. The leasee looks after the car, services the car and drives under average mileage (25,000 Km). At the end of the lease term the car is valued and assessed to have depreciated only 15%, therefore 15% of the principal amount pre-paid on the car is repaid to the leasee.

 

Alternatively, the depreciation is again set at 30%, but the leasee drives 60,000 km, (more than double the average mileage) doesn't look after the car and never services it. For these reasons, the car depreciates 45% during the term of the lease contract, therefore the leasee will be held responsible for the larger depreciation and sent an extra invoiced for 15% of the cars tax free value. 

 

Basically with flex-leasing there are no rules as to how many miles can be driven, or how the car is maintained. If a leasee looks after the car and drives under average mileage, then they will most likely gain and be refunded some of their initial pre-payment. If a leasee mistreats the car and drives above average mileage then they will probably lose all of their pre-payment and be invoiced for an additional amount. 

 

In the case of used high value luxury cars, which will be driven only a few thousand Km's a year and be well maintained and garaged, then flex-leasing really does make sound financial sense. Many used luxury cars lose such a large amount in the first 3 years that if they are well maintained and driven lightly in the future then they will almost maintain their value. When a standard flex-leasing pre payment of 30% is made and the car maintains all of its tax free value then the upfront payment will be refunded in full at the end of the lease term. Ultimately, the more value the car maintains the cheaper the cost of flex-leasing.

 

General assumptions 

 

Example: For a car which costs 400,000 DKr tax free. (3 years old with 60,000 km)

 

The cars tax free value is "approximately" one third (1/3) of the cars sales price including Danish registration taxes; therefore Danish registration taxes equal "approximately" two thirds (2/3) of the total sales price including tax.

 

Tax free cost of the car is 400,000 DKr + registration taxes (including moms) 800,000 DKr = 1,200,000 DKr total sales value in Denmark.

 

Flex-leasing made simple. One year contract

 

1 year flex leasing contract 

 

Down payment 30% of the cars tax free value (maximum amount allowed)

 

Depreciation level 30% after 1 year (30% year one)

Depreciation level 40% after 2 years (10% year two)

Depreciation level 50% after 3 years (10% year three)

 

Cost per month to flex-lease the car approximately one percent (1 %) of the cars total value including registration taxes (1,200,000 DKr) = 12,000 per month.

 

Conclusion:-

 

If a car depreciates only 10% in the first year then 20% of the pre-payment will be refunded.

If a car depreciates 20% in the first year then 10% of the pre-payment will be refunded.

If a car depreciates the full 30% in the first year then none of the pre-payment will be refunded.

Finally, if a car depreciates more than 30% then the leasee will be charged for the additional value lost.

 

Example of a typical leasing offer: