What’s the difference between leasing and financing vehicle?

Which makes more sense: credit or leasing?

Statistically, the financing offered by the dealer or manufacturer is an important or very important criterion for around two out of three buyers when buying a car.

After all, when it comes to buying a new car, very few prospective buyers have the necessary cash in their pockets – at least when it comes to buying a new car. Only a little more than one in three (36 percent) were able or willing to put the purchase price on the table in cash last year. In contrast, 42 percent of all new car buyers (PDF) opted for a loan, and still every third new owner of a used car.

One in ten consumers also makes use of a leasing option, according to a survey from 2015 on the preferred forms of financing when buying a new car in Germany. On average, every fourth financing is based on leasing.

If you opt for leasing instead of a car loan, your fixed monthly payment is a kind of rental, to use the vehicle instead of buying it. If the previously agreed term has expired, you have two options:

• You return the car;
• You pay the residual value to purchase it.

However, you must also strictly adhere to the previously agreed conditions, such as the kilometers driven, during use in order to avoid unpleasant surprises due to expensive surcharges when paying the residual value. You can make the leasing form of financing unattractive by making any additional payments afterwards.

You also bear the costs for insurance, maintenance and repairs.

Therefore, leasing financing is more interesting for companies and companies due to tax deduction options.

Who offers better conditions: the bank or the retailer?

Against this background, leasing only really makes sense for private individuals if the vehicle is only intended to be rented and only use, not ownership, is desired.

On the other hand, if the car is to be purchased and aren’t you one of those who

have the means to pay the newcomer in cash
be lucky enough to get the car as a gift or
can completely finance the purchase of the new vehicle from the sale of the previous car
you can not avoid a loan. This also makes sense against the background of conserving your own reserves for other, more important purposes, such as building up reserves for your own retirement provision. Cash should therefore not necessarily be used for consumer goods. In addition, many buyers find it easier to pay for the car in monthly installments, do you too?

The house banks of the manufacturers can often score with particularly attractive interest rates.

That’s how one does it car bank to a manufacturer-independent bank or an intermediary usually the better offer.
In addition, financing via the dealer and the car bank connected to him is comparatively convenient and simple, since only one contact person appears during the purchase process and you receive information from a single source.

On the other hand, after using an autoredit from a third-party bank, for example via Autokreditevergleich.de, you as a buyer are given better chances of negotiating the price, since you can then use the borrowed money to pay for the car in cash from the seller. As a cash payer, you traditionally have better cards in negotiation situations and can get something out of your bargaining skills if you put the money on the table in cash – especially if you want to buy a more expensive base.

You can freely dispose of the funds released with a car loan from a third-party bank and are not tied to a specific purpose. However, you often have to pay for this freedom with a higher interest rate, which is customary in the industry, which is not the case with car banks.

In any case, you should obtain at least two offers from your car dealership and a third bank and compare the conditions. The primary factor here is the effective interest rate, which is the key benchmark. Although dealers often advertise with low interest rates, the decisive factor is the total cost of the loan, which can only be represented in real terms by the effective interest rate.

Which type of financing should I choose?

Once you have decided on a car and dealer or bank, there are basically three other options available to you when it comes to financing in addition to private leasing:

• The classic car loan (installment financing)
• Balloon loan
• Three Way Credit

It is imperative that you be able to have the higher final sum at your disposal when the time comes, instead of having to finance it again with another bank loan. Because then a so-called follow-up financing can be really expensive.

You also have to pay interest on the high closing rate right from the start. This is usually more expensive than paying off the loan with larger sums in the first place.

However, since the final amount is usually lower than the actual residual value of the car, you are better off with the balloon loan if you can pay off the final installment in one go.

If a down payment has to be made for the balloon loan, it is the so-called Three Way Credit, which is considered the most flexible of the three forms of financing. However, you buy yourself more flexibility with higher borrowing costs, since the balloon completion rate has to be pre-financed via the loan.

As with private leasing, you can return the car to the dealer in good condition at the end of the contract.

Or you

• You acquire the car by paying the fixed final installment
• Finance the final amount with another installment loan and pay off the total amount in monthly installments.