Basic terms you may encounter when buying a car
Purchase of a new car is an important change in one’s life. Be well prepared for it, so that you only have good memories associated with it. Before you take any action, we suggest that you familiarize yourself with the basic terms you may encounter in the process.
Few of us are lucky enough to be able to afford exactly the car they need and like. The financial market offers a couple of options here, such as car loan, operating lease, personal lease and 50/50 loan. You will find more about these below:
Car loan – a financial instrument offered by a bank to a customer who wishes to purchase a car but cannot afford one. The basic parameters to be compared when checking different car loan offers are the credit facility fee and notional interest, as well as other necessary costs such as loan insurance.
50/50 (or 40/60, 60/40) loan – a loan that allows you to pay 50% of the vehicle price on the day of purchase, and the balance is to be paid later, on a mutually agreed day (e.g. a year later).
Own share – the part of vehicle cost that the buyer pays themselves. More and more banks do not require any share on the part of the buyer but the offers prepared for those who are able to have one should have better conditions.
Operating lease – one of the most popular ways of purchasing vehicles by companies. The car is, technically speaking, owned by the company (the lessor), while the driver (the lessee) calculate leasing interest as part of tax deductible expenses and deduct VAT. Operating lease often allows the lessee to purchase the vehicle when the lease ends.
Personal lease – an offer similar to operating lease but directed to persons not conducting business activity.
Finance lease – an offer directed to companies; unlike operating lease, financial lease allows the lessee to own the vehicle. Only the interest rate is calculated as part of tax deductible expenses and VAT is paid in advance with the first lease repayment. VAT is deductible.
Lease repayment – a predetermined monthly amount paid by the lessee to the lessor for use of the vehicle.
Leasing fee (initial payment) – lessee’s own share in lease agreement.
Residual value – the price for which the lessee can purchase the leased vehicle when operating lease agreement ends.
Facility fee – a fee paid to a financial institution for signing the lease agreement or advancing a credit.
While purchasing a car, whether from a dealer or just another individual, you need to pay attention to the following:
ASC (authorized service centre) – a service centre authorized by the manufacturer. A car that is regularly serviced in ASCs only, when sold, will be worth more than one serviced elsewhere.
VIN (vehicle identification number) – a unique 17-digit car ID assigned to it during manufacturing. It enables you to check vehicle history (e.g. whether it has been repaired following an accident, or stolen) with the use of such services as autoDNA.pl. The VIN number displayed in the car must be easily readable and look unaltered.
Technical examination – a compulsory examination carried out annually in vehicles older than 5 years, or in 3 and 5 years since registration in new vehicles. A car you are looking to buy should have valid technical examination documents.
Vehicle history card – a document listing all vehicle and owner data, including previous owners. It was introduced in 1999, so every vehicle registered in Poland after 1999 should have a history card. The seller transfers the card to the buyer during purchase, as it is necessary for vehicle registration.
Vehicle registration card – a document issued by the Department of Transportation during registration. Together with the registration form, the new owner of the vehicle must hand over the registration card obtained from the previous owner.
VAT margin invoice – a dealer issuing a VAT margin invoice taxes the difference between the price they have paid for the car and the price you are paying for it as a customer. The invoice should have the total cost you are paying for the vehicle, without listing the VAT separately; there should also be a note saying “margin procedure – second-hand goods.” This option does not pay if you are running a business and can deduct the VAT as with a VAT margin invoice you cannot deduce the VAT. You may also encounter further problems if you have purchased a car as a person (not business) and asked for this kind of invoice if it turns out the seller has not paid the VAT; it might then be you who will be asked to pay the tax.
VAT invoice – a proof of purchase alternative to a sales agreement.
Sales-purchase agreement (SPA) – a document confirming the transfer of possession of the car, alternative to a VAT invoice. The agreement should have a date of sales-purchase, detailed data of both the seller and the buyer, detailed data of the vehicle (such as make and model, engine, date of first registration, mileage, registration number, VIN), price and payment method.
Third party liability – a compulsory personal liability insurance. It protects you from charges when you have caused an accident while driving the vehicle. The basic scope of TP insurance should be the same in each insurance provider. When purchasing a car you need to determine when its current TP insurance expires.
Importing a car
If you decide to purchase a car imported from abroad, you may be subject to additional procedures and fees:
Duty – the fee paid for importing a vehicle to Poland from outside the EU. The standard value is 10% but the EU has signed contracts reducing it with certain countries.
Excise tax – the fee paid for importing a vehicle to Poland, depending on the engine:
- engines up to 2000 cm3 – 3,1% excise tax calculated from the tax base
- engines over 2000 cm3 – 18,6% excise tax calculated from the tax base
For vehicles imported from the EU the tax base is the price of car as per sales-purchase agreement multiplied by the exchange rate. For vehicles imported from outside the EU, it is the customs duty value plus duty.
Recycling fee – a payment of 500 PLN for importing a vehicle. It is paid to The National Fund for Environmental Protection and Water Management. The payment is required for vehicle registration.
Sworn translation – before the vehicle is registered, the sales documents must be translated to Polish by a sworn translator.
After the purchase
After you have purchased the car, you need to follow a number of procedures such as tax payment, vehicle registration, or selection of additional insurance.
PCC3 – you need to deliver a filled-in PCC3 form to the Tax Office within 14 days since purchase. You will also be asked to pay the tax on civil law transactions (2% of the transaction amount).
Vehicle registration – a procedure of obtaining a registration card with the data of the new owner. The form should be accompanied by a proof of ownership, vehicle’s current registration card with a valid technical examination, vehicle history card and registration plates. If the vehicle has been imported, you also need to attach the proof of payment of duty (for vehicles from outside the EU), excise tax, recycling fee, VAT (or exemption) and sworn translations of purchase-related documents.
Own Damages – optional insurance that reimburses you if the car is damaged, destroyed or stolen. This is the insurance you will use to repair your own car if you have caused an accident. Policy conditions will differ in different insurance providers.
Roadside Assistance – optional, non-compulsory insurance that provides assistance if the car breaks down, battery dies, a tyre is punctured, etc. Different assistance providers will offer different policy conditions.
Accident Insurance – optional insurance applicable to your passengers in case you have an accident. Again, conditions may be different in each policy provider.