If you are looking for a car, you will not only be struck by the multitude of car models, but also by the variety of financing options available. Particularly low installments promises the lease.
The monthly burden here can be less than half of a loan financing. Since the decision between credit or leasing often scher, because both have its advantages and disadvantages.
All facts about the guidebook “Leasing or credit” at a glance:
- Leasing is the possibility to rent an object or object.
- With a loan, money is borrowed to buy an item or object.
- A leasing contract is more expensive for private individuals than a credit agreement.
- Many do not have the opportunity to take out a loan because of their living conditions and need to lease.
But what possibilities are behind the offers of leasing or car loans? Our guide to the topic of leasing or car loan reveals it!
1. What is leasing?
Behind the principle of leasing hides basically only the temporary rental of a car. The lease is also not concluded with the car dealer, but with a leasing company, which is usually brokered by the dealer. The leasing company buys the desired car and rents it. At the end of the lease term, it is sold back to the dealer by the leasing company.
By law, it is the case that the leasing company buys the car, but this is also admitted to the lessee. Therefore, the lessee is also responsible for repairs and maintenance. However, the leasing company can incorporate in their contract that maintenance and repair work may only take place on certain motor vehicle companies.
Preemption rights must be fixed in writing and are also rather uncommon. It should also be noted that pre-emptive rights are to be agreed with the dealer and not with the leasing company. After completion of the contract this returns the car to the dealer. Whether he continues to sell this car to the lessee is not in the interest of the leasing company. Therefore, all purchase negotiations must be conducted with the dealer.
The leasing rates are generally higher in total than the value loss resulting from the use. Nevertheless, the sums paid to the lessor are not deducted from the original purchase price. In addition to the loss of value, the leasing provider also calculates the costs of the bureaucratic outlay before, during and after the contract period and refinancing costs. But the dealer did not make any profit from that. He sells the car to the leasing company and buys it back after three years at the given market price. At least he has to demand this price from the customer in order not to incur losses.
What kind of leasing contract exactly is written in the fine print. This should be read carefully before the contract begins. This can save you some unsightly surprises at the end of the contract. Basically, however, you can distinguish three different types of leasing. These are:
- Contract with tender rights (no purchase right !!!)
- Kilometers billing model
- Residual value accounting
The contract with the right to tender takes into account the fact that the calculated loss of value of the wagon at the end does not correspond to the actual value. If the loss in value exceeds the calculated amount, the lessee is obliged to purchase the vehicle. Should the loss of value be less than planned, the leasing company will sell the vehicle itself to earn the corresponding profits. At no time does the lessee have a say or purchase right. He is completely at the mercy of the behavior of the leasing dealer.
In the mileage accounting model, an approximate number of kilometers is determined and agreed in advance. Over the lease period, the installments are calculated on the basis of the loss in value as a function of time and mileage. If the lessee exceeds the specified number of kilometers, he must pay a multi- kilometer rate at the end of the term. How it looks like is regulated in the leasing contract. The advantage is that there is no residual value risk here and the additional costs are calculable at the end of the lease.
When settling the residual value, the lessee pays a special payment at the start of the contract, the monthly installment and, in addition, the negative difference between the calculated and the actual residual value at the end of the term. Contrary to the tendering right, however, the lessee is not obliged to buy the vehicle here.
Lease is mainly used for road transport. Especially the leasing of trucks and company cars enjoys great popularity, as the installment payments for companies are tax deductible. Private individuals can not take advantage of this advantage. On the other hand, they benefit from relatively low rates and a relatively short commitment time. This is a good opportunity for apprentices to finance a vehicle.
There are different types of leasing that have their own advantages and disadvantages. The differences become noticeable only at the end of the term, when it comes to the return of the vehicle and corresponding Nachzahlungsverpflichtungen.
2. What is a loan?
With a loan one lends money from a lender and pays for the borrowing of the money a price in the form of interest. Depending on the agreement between the borrower and the lender, the items of property financed by the loan may be deposited as collateral or other items of property may serve as collateral.
There are also loans that do not require collateral. As a rule, the credit agreement only refers to the money and the terms of the repayment. There are no sayings on the purpose of use on the part of the lender.
The credit is not only the reimbursement of the loss of purchasing power due to the passage of time – inflation – but also a “rental fee”. These amounts are added together in the calculation and for the borrower it is usually not clear with what a loss of purchasing power the lender expects and how high accordingly the lending fees are.
If actual inflation over time exceeds calculated inflation, the borrower is unaffected. Only the lender pays here. For long-term loans, therefore, the interest is only fixed for a certain period of time and will be adjusted to the prevailing market interest rate after expiration.
3. A comparison of leasing and credit
Especially for apprentices, it is much easier to get a leasing contract than a loan agreement. If one compares the facts of a car purchase this is also easy to understand. With a credit agreement, a car should be bought by the borrower and financed through installment payments. The problem is that apprentices have a secure income for only 2 to 3.5 years. In this time, the purchase of a whole car would have to be realized. The monthly burden would be accordingly high.
When leasing a car, the leasing company pays the car and only charges a monthly rent to offset the loss in value and bureaucracy. The lessee is subject to significantly lower monthly burdens, which is why the likelihood of not getting into payment difficulties is significantly increased. Therefore, the decision-making power of leasing or financing trainees is not in their hands.
However, workers on fixed-term contracts should exercise caution here. Of course, they also have a hard time to get a long-term credit agreement, but their income is usually higher and accordingly higher installment payments can be made monthly. The disadvantage of the leasing contract is namely in the non-existent notice options. Most leases are for a three-year term and the leasing company is not interested in whether the lessee is solvent or not.
Here also no hardship regulations can be asserted. While the borrower still has the opportunity to sell his car in case of loss of employment and thus to finance the loan payments, these options are not available to a lessee. He is bound by the monthly payments until the end of the leasing contract and may then have to pay for the additional payments listed above.
In addition, one should be aware that in the end it is more expensive for private individuals to lease a car than to buy it yourself. Of course, not all people have the financial means to buy a car or to conclude a loan agreement. As an interim solution, a leasing contract is a good way, but in the end always wins the lessor.
The fact that the leasing is so popular despite the rationally comprehensible disadvantages also with private individuals, can be justified with the feel-good factor. It is much more pleasant to conclude a lease, when saddling the obligations of a credit agreement. The inhibition threshold is lower, since the monthly burdens are also smaller and the risk of being in arrears is therefore lower.
4. Conclusion: Not everyone has a choice
At the moment when there are enough resources available to buy a car bar, private individuals should do the same. Few private individuals want to buy a 100,000-euro car, which is why opportunity costs can be disregarded by other investment options at this point. Bargaining also strengthens the bargaining position of the buyer.
If there is no liquid funds available for a cash purchase, a loan should be taken. Paying for the loan installments will ultimately be cheaper than a leasing contract and offer more freedom and less dependency.
If one is not creditworthy, private individuals can finally resort to a leasing contract as a temporary solution. Here, however, the fine print must be considered, so there are no nasty surprises at the end of the term. Which type of leasing is chosen depends on the personal circumstances of life and, unfortunately, mostly on the will of the leasing companies.