How car leasing works
If Peter leases a car, he will pay a deposit and monthly leasing installments for a defined term and number of kilometers (for instance, 10,000 kilometers a year). The terms and conditions are governed by a leasing agreement between Peter, the garage and the leasing company. The leasing company continues to own the car; Peter is merely the holder and pays for its use. Once the agreed term expires, he has three options:
- He can return the car to the leasing company.
- He can pay off the remaining sum and gain ownership of the vehicle, if the leasing agreement permits this.
- He can extend the lease with new terms and conditions.
With the leasing installments, Peter pays back part of the amount still outstanding for the vehicle after the deposit each month, plus interest. At present, depending on the offer, leasing installments accrue interest of 3.9% to 5.9%, with lower rates in some cases even without manufacturer promotions. In addition, leasing vehicles generally require comprehensive insurance. Leasing installments are tax deductible for companies if the vehicle is used for business purposes, but not for private individuals like Peter.
How a personal loan works
Leasing: Advantages and disadvantages
- Flexible: terms of 12, 24, 36, 48 or 60 months
- Easy switch to an up-to-date model at the end of the term (new agreement)
- Generally no major repairs (wear and tear) when a new vehicle is leased
- Fixed surrender value, irrespective of the change in value development (no risk of a loss in value)
- Car leasing can affect creditworthiness and consequently other financing
- The vehicle is returned after the lease expires (or can be purchased at the surrender value)
- Claims are settled after return, with the customer only bearing the deductible
- The leasing agreement can be canceled, but this costs money
Personal loan: Advantages and disadvantages
- Flexible terms of 12 to 60 or more months
- The vehicle belongs to the loan recipient, in our case Peter
- Depending on the contract, Peter can repay the loan more quickly and shorten the term of the contract
- Free choice of workshop for service or repairs
- Car financing can affect creditworthiness and consequently other financing
- Interest rates are higher than for leasing
- Expensive repairs (wear and tear) are possible after a few years
- The vehicle belongs to the holder, so he bears the risk of a loss in value
- Vehicle must be sold by the holder
Cost comparison: Leasing vs. loan
|Loan at 3.9%||Leasing at 3.9%|
|Purchase price including extras||49,000||49,000|
|Deposit (1st installment)||9,800|
|Term||48 months||48 months|
|Total costs without purchase||34,750.88|
|Total costs with purchase||52,929.60||54,350.88|
In addition to the leasing or loan costs, there are also
- taxes and duties,
- possibly the motorway permit,
- service and repairs, if not covered by the manufacturer in the first few years,
- tires and vehicle care,
- parking costs,
- fuel and
If Peter buys the car, he needs mandatory liability insurance for damage to objects or bodily injury caused by him. If he leases the vehicle, in addition to motorists' liability insurance, he generally also needs mandatory comprehensive insurance for damage to his own vehicle. This is prescribed by the leasing agreement.