Do you dream of driving around in a beautiful new car? However, like many people, your budget doesn't allow you to buy a vehicle without financing. In fact, when it comes to choosing between leasing and credit, you're not necessarily sure which is the best solution for you!
The truth is, both financing solutions have their advantages and disadvantages. In this new article, we give you some good advice on how to avoid financial loss. Happy reading!
Fundamental differences between leasing and credit
Leasing:
A leasing contract is actually a rental with an option to purchase. It therefore involves three parties:
- a dealer ;
- a leasing company ;
- and you!
Unlike the personal loan you do not own the car during the leasing period. You pay a fixed monthly rent to the owner, the leasing company, during the lease period. At the end of the contract, you can buy the used car by paying its residual value. Because of the way it works, leasing generally offers better rates than credit.
And credit:
Private credit is a loan taken out with a third-party financial institution. Once you've received the funds, you can use them freely to buy any vehicle you like! As the borrower, you are responsible for repaying the full amount to the lending institution on a fixed schedule. With a private credit, your vehicle belongs to you, so you're free to do what you want with it! The interest rate will be higher or lower depending on your situation and the offers you receive.
Which is the cheaper of the two?
If we look at the figures alone, leasing costs are significantly lower compared with consumer credit. The explanation for this is quite simple: leasing offers lower interest rates. Since the leasing company remains the sole owner of the vehicle, it can afford a lower interest rate because of the lower risk of losing the funds.
The leasing company will therefore pledge your car by indicating on the registration form that it is the owner of the vehicle. This is known as the« code 178 »and can be the source of various problems, as indicated by this article from 20 minutes.
Yes, but private credit offers many advantages!
This is true, and what's more, the cost difference in favor of leasing remains relatively small, especially when compared with the various advantages of private credit.
- You own the vehicle, so you can do what you like with it. No need to wait or negotiate with the leasing company to part with the vehicle! These days, leasing contracts are often drawn up for a period of 4 years. During this long period, many things could happen that would require you to change your car, for example.
- With a leasing agreement, you have to buy your vehicle back in cash at the end of the contract. The leasing offer was very tempting, but unfortunately you didn't pay attention to the price you'd have to pay at the end of your contract. Depending on the monthly instalments calculated and the kilometers driven, the final buy-back price can be very high!
- With a private credit, you don't have to worry about the number of kilometers you drive. And yes, leasing also means that the number of kilometers driven each year is limited. If you've exceeded your mileage at the end of your leasing contract, you'll have to pay for it. The price per kilometer exceeded can vary from 3 to 12 cts, depending on the make and conditions of your contract. Assuming an excess of 30,000 kilometers, the final additional bill could vary from CHF 900.- to 4’500.-.
In a nutshell, credit is therefore a little more expensive, but in exchange offers you greater freedom and financial security!
Comparison of credit and leasing
Here's a table summarizing the advantages and disadvantages of these two financing solutions.
| Special features | Leasing | Credit |
|---|---|---|
| Vehicle ownership | The leasing company | It's you! |
| Kilometers | Limited | Unlimited |
| Vehicle resale | Difficult to negotiate | Total freedom |
| Residual value | The vehicle must be repurchased | Does not exist |
| Interest rates | Varies from 0% to 5% | Varies from 3.9% to 9% |
| Tax savings | Interest is not deductible | Interest is deductible |
| Year of vehicle | Vehicle must not be more than 5 years old | You are free to choose |
| Vehicle purchase deposit | You must make a deposit | No deposit required |
| Vehicle wear and maintenance | Keep your vehicle spotless | The choice is yours! |
| Insurance | Collision insurance is mandatory | No obligation other than liability insurance |
Despite the financial appeal of leasing, it still imposes many constraints! Credit is therefore a little more expensive, but offers many more advantages!
Our conclusion for choosing between leasing and credit
As you'll have noticed, private credit is still more advantageous! However, despite the constraints, leasing can also be interesting in the following cases:
- If you are a company or self-employed, your monthly payments are also tax-deductible; ;
- If you are absolutely certain that you do not want to exceed the kilometers ;
- And finally, if you're looking for a new vehicle and a lease is just right for you.
If not, you'll certainly opt for the credit solution to finance your new car! If you currently hold a leasing contract, you should also know that it is still possible to buy back your lease using a credit facility. This is free of charge, so you won't have to pay a large sum at the end of your lease.
Now that you're fully aware of the differences between leasing and credit, take the time to consult our specialists to find the best solution for you. You can always count on Lica to provide confidential support.