Leasing Problems

The Bulgarian leasing market is relatively young. We write about it in detail in the article  “Leasing History”. Over the past 20 years, it has undergone rapid development with serious turbulences. During this time, the local leasing practice was accumulated, the legislative framework was created, leasing companies emerged, and there were more and more lessees. However, there are still several problems related to leasing in Bulgaria. We will call them the “leasing problems”:

  1. Limited information on leasing

In short: there is a shortage of online practical information on leasing in Bulgaria.

The information on leasing in Bulgaria is limited. Indeed, over the last fifteen years several books on the subject were written (prior to these there was only one). All of them, however, are highly profiled, ie. consider either legal or bookkeeping aspects of the transactions. There are no practical leasing tips (for example, “how to calculate the lease rate with a calculator”), there is no interesting leasing information (for example, the “history of leasing”), there are no explanations of different world leasing practices that may one day come to Bulgaria (e.g. “novated leasing”). Most of all, the online leasing content is rather limited, while today this is the most widely used media for gathering, searching and using information and referrals.

Leasing problems

It is true that we can easily find different leasing sites and portals in foreign languages, but as this suggests – they treat practices and theory which are specific to countries other than Bulgaria: for example, UK “hire-purchase” contracts, the US leasing “factor” , the “Novated” lease in Australia, and so on. When we speak of “lack of leasing information”, we have to note that we have Bulgaria in mind and information about the Bulgarian leasing market and the Bulgarian leasing practice.

The lack of sufficient information on leasing in Bulgaria is an indisputable fact. It is quite possible that this is the reason for the relatively low penetration of leasing in the country’s economy (we will analyze this in the article on “Leasing Markets”).

At the same time, the leasing portfolio (the sum of residual payments on all leasing contracts) in Bulgaria is not very small – about 4 billion levs (according to the data from the Bulgarian National Bank in 2017). This means that about 80,000 individuals and companies use the leasing service (an average value of one leasing contract of BGN 50,000 is assumed).

The limited or better said – the lack of leasing information hinder the curious lessees extract the maximum added value from the leasing service.

2. leasing companies as the main source of information

In short: the only online source for leasing information in Bulgaria are the leasing companies.

Being fair, when we say “lack of online information about the Bulgarian leasing market”, we do not mean full absence of such. It is true that some leasing companies are trying to explain the different leasing terms, practices and products. While paying due respect to their efforts, we can not fail to point out that whatever information they share online, lessors will always be biased – their services will be the best, the cheapest (often interest-free),

leasing problems

the fastes, etc. Noone can blame them, for “praising their products”. A problem occurs, however, in finding bias-free information on leasing and leasing advice in plain language by experts.

Naturally, someone can oppose, “We can get all the necessary information from the leasing companies” ?!

Yes and No.

First, the leasing service may or may not fit into the specific features of each budget, VAT policy, tax planning, and so on. Unfortunately, lessors are rarely involved in what type of lease or repayment plan is best suited to the lessee. Consider whether lessor 1 will direct you to another lessor 2 (a competitor of his), simply because lessor 2 offers a more appropriate service (such as a seasonal installment repayment plan) or a better priced service. How else could it be? Their task is to sell their service.

The above also suggests the access to the leasing service and information about it. leasing companies distribute their services most often directly or through suppliers of leasing assets. This means that if you want to finance the purchase of your new Toyota by leasing, you will receive an offer from the TM Auto (currently the official dealer of Toyota in Bulgaria) by the lessor with whom they work at that particular time and it will be just one. This is not bad, but perhaps some other lessor may offer more favorable terms for your particular case. Unfortunately, the only option for the potential lessee is to “tour” all 45+ leasing companies in the country, ask for a bid from everyone, ask for advice and compare what has been received. Even if there is enough time, the potential lessee will need some knowledge to compare the different offer-formats which she will acquire.

We endeavor to work on solving these leasing problems.

3. Difficult comparison of leasing offers

In short: it is „difficult“ enough for a lessee to acquire several leasing offers for the desired asset, but the comparison of the received leasing offers will require knowledge and skills, which are not available online.

Leasing is used to acquire fixed assets. When choosing the assets themselves, we usually make a serious market survey. Lately, we can do this online too – we can find competitive offers for the price of the asset required, the cost of its various components, terms of delivery, warranty conditions, and so on. We can study its price on different markets, from different suppliers, local and international.

It sounds only reasonable to be able to do the same for the leasing service too, if we have decided to use leasing as our funding service.

The leasing offer can be obtained from the point of sale – for example, from the car dealership, which sells our chosen new car. Everyone usually has a business relationship with some lessor. Naturally, we can also get a leasing offer on site, from any leasing company itself, after answering some basic questions. Some of the leasing companies also have online calculators which calculate the basic parameters of the leasing offer … and do not mention others.

Let us assume that the potential lessee has had quite a lot of free time and has collected 5 leasing offers for the same leasing asset – for example, a car. This would imply that she has physically visited several leasing companies. Each offer will have some peculiarities and a specific look. Each will be in a different format, with different level of detail, with different fees, residual values, specific conditions, additional services or lack thereof, etc. Comparison may be hindered yet due to differences in the type of leasing used (try comparing a financial leasing offer with residual value with an offer for financial leasing without residual value).

leasing problem - find the difference

We are convinced that among our readers there are competent people with lots of free time who can collect several leasing offers and easily “find the differences” between them and later select the best one for their needs. However, for the mass potential lessee, comparing leasing offers and selecting the best one for their needs is not an easy process.

Without a comparison of offers, which are perfectly clear to any potential lessee and fit perfectly with their needs, bypassing all “dangerous clauses”, it will be hard to take advantage of the benefits of the leasing service.

There is no reason why this should be so, especially having in mind the current state of technological development.

We endeavor to provide a solution to this problem. Our Mission is to solve it.

4. Lengthy analysis of the creditworthiness

Leasing is a form of funding provided to the lessee by the lessor. Accordingly, the lessor analyzes the creditworthiness of the potential lessee. For this purpose, they will require different documents (see section “Leasing practice”) by the lessee, makes checks in different registers (NSSI, CCR, SDPC, etc.) and perform the analysis itself. When the leasing object is worth several million, it is reasonable to make this analysis for a week or ten days. At the same time, the analysis of the creditworthiness for the leasing of a new car currently (2018) with almost all leasing companies in Bulgaria takes just as long.

During the analysis of creditworthiness, the potential lessee waits and possibly provides additional documents. In addition to the length of the credit analysis, the negative outcome of the credit analysis is also a problem which the potential lessee learns only after a couple of weeks. Accordingly, the latter must go to a second leasing company and start the process from scratch. It can be argued that this is a waste of time for the potential lessees.

This prolonged process is highly frustrating for prospective lessees and often forces them to hurry when signing the lease documentation after achieving the “difficult” approval, thus neglecting to pay attention to important contract terms and the accompanying documents.

Certainly, this process, or at least the negative response, can be severely shortened in order to save time for the potential lessee, especially in regard to small ticket leases and more liquid assets.

We will do our best to help lessees identify their leasing needs and find easily the best leasing company for these needs.

5. Lack of online leasing

Lately we can do almost everything online. We have the option to buy airline tickets online, make reservations for accommodation thousands of kilometers away online, get insurance coverage online, declare and pay taxes online, register companies online, find a boyfriend online, buy almost everything online. We can even bank online (rumor has it that banks are very conservative, but they did it).

leasing problems - online leasing

It seems that the only service, which we cannot get online is leasing. This „leasing problem“ is not just Bulgarian. In mid 2017 CB Insigts published a survey of the top 250 fintech companies (innovative companies, which implement the latest technology in the financial sector) in the World:

leasing problem

In this vast diversity of financial services which are being revolutionized by technology (often bringing the service online is the main innovation) and the fintech companies, a total lack of the leasing industry should be noted.

There is no specific reason for this to be so. We will work hard to make more and more online leasing services available to our clients and readers.

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