Car loan or leasing? Tips, information, advantages and disadvantages

Leasing is often the magic word when financing larger purchases such as a car. But is leasing really better and so cheap or is a car loan better? We examine this question. In Switzerland in particular, the number of leased vehicles is very high. Many consumers are not aware that leasing can be expensive. Often a small loan is perhaps cheaper. In addition, the credit has the advantage that the car belongs to the buyer from the beginning. This is not the case with leasing. Especially the apparently cheap leasing rates can be deceptive and only make up part of the total cost.

Disadvantages of leasing

If the contract is terminated prematurely, the debt trap is just around the corner

The contract period is usually three to five years. If you want to withdraw from the long-term leasing contract prematurely, this is not possible without a hefty final invoice. In the event of premature termination, the customer bears the loss in value. The Credit Consumption Act entitles leasing companies to a subsequent increase in the price of the leasing instalments in the event of premature withdrawal from the leasing contract by the lessee. The basis for the recalculation of the leasing instalments is the "residual value table" in the general terms and conditions of the leasing contract. In the event of financial hardship such as unemployment or divorce and the like, early termination will lead to an aggravated financial situation.

The car does not belong to the customer
The main argument against leasing is that the car does not belong to the buyer, for the duration of the leasing contract. As leasing customers, motorists are not permitted sell, lend the car. At the end of the contract, the car is returned to the leasing company. There is no right to buy the car at that point. With leasing, you cannot freely dispose of the vehicle and are not automatically the owner.

Hidden costs
When buying a car, costs are incurred which are not immediately apparent. This includes the obligatory fully comprehensive insurance - without this, leasing is not possible. Later on, car owners cannot switch to a cheaper partial coverage insurance either. The premium for leasing vehicles is even higher than for cars paid for in cash.

Service at the authorised dealer
The contract often stipulates that the service must be carried out by a authorised garage. It is not possible to change to a cheaper garage of your choice. The service can involve considerable costs, as leasing companies make specifications about the service to be carried out. This applies, for example, to expensive original spare parts instead of pattern parts.

Limited mileage
The leasing contract usually restricts the annual mileage. if the limit is exceeded then further costs will be incurred by the customer. Anyone who overestimates the number of miles required annually may end up paying dearly for the mistake.

Advantages of a car loan

Ownership
With own funds or a car loan, the vehicle belongs to the borrower from day one. This means that the owner can freely dispose of the car from the outset - it can be lend it on request or resell it at any time.

This is helpful in times of financial difficulty. For example, if you should lose your job, the vehicle can be sold and the loan repaid and cancelled.

Free choice of workshop and parts
Those with a car loan are also completely free in their choice of workshop and can use low-cost garages if desired. It is also up to the driver to decide which parts are replaced and when. In addition, high-quality spare parts can be chosen, which do not have to come from the brand.

Lower Insurance costs
After about two or three years, drivers can switch to a cheaper partially comprehensive insurance. When buying, you can compare offers and choose favourable rates from the outset.

Interest is tax deductible
It is possible to declare a car loan as a debt and deduct the interest from income tax. Leasing contracts do not offer this possibility for private individuals.

Conclusion:

A favourable alternative to leasing is the cash purchase. If the money is not available in cash, a car loan can be an option.

Please also read the information of the Bern Debt Counselling Service in PDF format (in German).

Car loan

Car loan or leasing?