Buying a car: financing or leasing – what are the advantages and disadvantages?
If you need a new car, there are several financing options to choose from. The main focus is on leasing and financing. All of these two options bring with them different rights and obligations, so careful consideration should be given to how the car is paid for.
Buying a car: a question of financing
Financing at the dealership
If you want to finance your car, the dealership will make you an offer. The purchase price, a possible down payment and the term of the financing are included in the calculation. You can use the car from the beginning, but the car remains the property of the car dealer.
With the payment of the last installment the car officially belongs to you.
There are also different financing models. Often there is a residual sum at the end, which can also be paid off or financed further as desired. To be on the safe side, the car dealership or its bank retains the vehicle title in order to be able to sell the car elsewhere to cover the costs in the event of non-payment.
Financing at the dealership
Factors of the rate
Several factors play a role in calculating the monthly rate:
- Purchase price: the basis for the rate is the purchase price. In the case of financing, interest will be charged, depending on the bank through which the car is financed.
- Down payment: the down payment is a sum that you pay in advance at the beginning of the financing process. This sum is deducted from the purchase price of the car. For example, if your car costs 20.000 euro and you pay 4000 euro, you will be charged for the rate 16.000 euro charged.
- Term: the longer you want to finance the car, the lower the monthly rate will be. Most banks have specific terms that you can choose from. This can be for example 60 months, that is 5 years.
- final installment: a certain final installment is determined according to the term of the lease. At the end of the term, there may be a sum left over that can either be paid immediately or financed further. If you have agreed on a final installment, the monthly rate decreases as a result. This can be worthwhile, for example, if you can foresee that you will have saved enough money at the end of the installment.
Leasing the car
With leasing, you conclude a contract with a leasing partner. For the leasing period you get a limited right of use, for which you pay a contractually fixed rate. During this time, you are the owner, but not the owner of the car.
Depending on the contract, you may also be responsible for maintaining and repairing the car.
at the end of the leasing period you can return the car or continue leasing it.
As with financing, there are several options to choose from.
With leasing you conclude a contract with a leasing partner
Residual value leasing
In this case, the provider determines the loss in value during the period of use. from this he determines the value that the car will still have at the end of this period. The provider calculates the difference between the purchase price and the residual value, on which interest is still charged.
If the vehicle costs 20.000 euro and the provider estimates a residual value of 13.000 euro, there is a difference of 7.000 euro. With a term of 24 months and 3.45% interest, the customer must pay 337.94 euros per month.
At the end, the provider checks the actual loss of value, which may increase due to accidents, wear and tear or poor maintenance. If the residual value is actually lower, the customer must pay the rest.
This is the most common leasing option. the supplier and the customer agree on a maximum mileage that can be driven.
At the end, the provider checks the kilometers driven and calculates whether money has to be refunded or paid in arrears.
If fewer kilometers are driven, the money is refunded; if the kilometer limit is exceeded, the customer has to pay extra. There is often a warranty limit of 1500 to 2500 kilometers. If the customer exceeds this limit, he usually has to pay a certain amount per kilometer.