0 % Leasing Simply Explained

An offer catches your eye at the car dealer: the latest model at 0% leasing - does that mean you get the car financed for free? Sounds too good to be true, and it usually is. Due to hidden costs, you often pay just as much or more with this leasing model than with a contract with interest. Let's take a look at what's behind the supposed bargain.

What is 0% Leasing?

Driving a new car without having to fork out the purchase price yourself - car leasing makes it possible. Leasing is a transfer of use in installments. You do not have to finance the purchase price of the leased object, for example, a car, with a loan. The lessor takes care of this for you. As with loans, interest is almost always charged. You have to pay this as well as compensation for wear and tear or depreciation on the leased object. They increase the monthly leasing installments or extend the repayment period.

With 0% leasing, the lessor does not charge any interest in theory. How is this possible? Find out here why this is still a good deal for the financier.

Understanding terms and conditions

Leasing is tempting. Hidden basic costs, fees, and disadvantageous conditions in the small print can make you regret the spontaneous conclusion later on. The following therefore applies before signing:

• Compare the offers from different lessors carefully.

• Check the contract and especially the small print carefully.

If you don't understand something, ask an independent person to explain it to you.

The Difference to 0% Financing

What is the difference between 0% financing and 0% leasing? Quite simply: with financing, you pay for a purchase and become the owner once the loan has been paid off. With leasing, you only pay for the right to use the vehicle. You can drive your leased vehicle exclusively, but you don't own it. On the other hand, the monthly installment is lower than with financing.

Many stores offer their customers the option to buy in installments. With expensive purchases, you don't have to wait forever until you have saved up the purchase sum. Instead, you pay a monthly installment. The retailer organizes the financing through a bank in exchange for compensation instead of interest.

Advantages of 0% Leasing

The attractive 0% leasing rate does not always conceal a cost trap. It's best to compare several offers with and without interest and make a detailed list of all costs. A huge advantage of 0% leasing is that you can plan ahead: the agreed rates always remain the same, which makes it easier for you to keep an eye on your budget.

Possible savings for the customer

If the lessor only adds its own financing costs to the 0% leasing contract, you can actually get a bargain with the interest-free option. This is often the case when manufacturers want to promote a model as part of a campaign. An oversupply at the dealer can also lead to worthwhile special offers.

Flexibility and change options

While you commit to a specific vehicle when buying with financing, with leasing you can simply change the vehicle at the end of the contract term. This means you can always drive a new model or try out a different make of car.

Disadvantages and pitfalls of 0% leasing

There are often hidden cost traps lurking in the terms and conditions of super special offers. This also applies to 0% leasing. If you think that 0% always means no interest, you could be onto something. Some lessors advertise with 0% leasing, but this only means that there is no down payment. They still charge interest.

The low rates of interest-free financing offers are very tempting. In the end, some lessees have to use their overdraft facility to service their liabilities - with high-interest payments. You should also bear in mind that the leasing rate for the car is not enough. In addition to predictable costs for insurance, tax, and fuel, there are also service and maintenance costs, tire changes, and any repairs.

And here comes another disadvantage that you don't notice at first glance with 0% leasing: the attractive discounts that sweeten your new car purchase in cash or on credit/leasing almost always no longer apply. So you pay the full list price. The difference can be higher than you would have had to pay in interest in the end.

Hidden fees and the small print

Many contracts are deliberately designed to be non-transparent. The aim is to prevent consumers from recognizing exactly what they are signing. The small print is notorious for cost traps. However, harmless names often conceal considerable payment obligations that you didn't even have on your radar.

• Lessors usually charge a basic fee for their service. How high this is depends on what they pass on to you as a customer. With 0% leasing, the costs for financing that you would otherwise have paid as interest are often hidden here. A comparison is particularly worthwhile here.

• There may be other costs lurking in the small print, such as for credit default insurance. Study their conditions carefully. If you need the insurance you have paid for, it should not be able to avoid payment due to exceptions.

• Sometimes the conditions also include taking out a credit line with the financing bank that you don't actually need. High interest rates are charged for this.

• Other hidden additional costs include “account management”, through which lessors even pass on costs that they should actually bear themselves.

Recognize restrictions and limitations

Restrictions in the leasing contract can spoil even real bargains. These include, above all, the agreed annual mileage. It is often too low for the needs of frequent drivers. Additional costs are charged for more free kilometers.

The mileage of the car in turn influences its residual value. There are actually two models for car leasing: residual value leasing and mileage leasing.

• Residual value leasing: Here, the lessor determines the residual value of the vehicle at the end of the term. The amount of the monthly installment is calculated as (purchase price minus residual value) divided by months of the term. However, if the actual vehicle value on return is lower than the estimated residual value, the lessee must pay the difference. This can happen even in the event of minor accidents or scratches in the paintwork. In the opposite case, however, the lessor does not have to pay anything.

• Mileage leasing: The maximum annual mileage is agreed upon in the contract. The higher it is, the higher the monthly leasing installments. The total mileage at the time of return is relevant: an additional payment is due for excess mileage.

Note whether the contract provides for a high final payment, the so-called balloon payment. Almost all lessees have to take out an interest-bearing loan to service this.

Alternatives to 0% Leasing

Leasing offers many advantages, but also disadvantages. In addition to the alternative of buying, there is now another option for making your automotive dreams come true: the car subscription. We compare the three options for you.

Buying vs. leasing vs. car subscription - a cost-benefit analysis

Let's look at the advantages and disadvantages of the different models:

Car buying advantages:

• The car is yours. You can modify, tune, and change it.

• There is no mileage limit.

• There are big discounts when you buy a new car.

Buying a car disadvantages:

• Interest on loans increases the purchase price.

• Running costs and extra expenses can exceed the budget.

• High depreciation in the first few years.

• Longer commitment to the vehicle.

Leasing Benefits

• Lower installments than when buying a car.

• Vehicle commitment only for the agreed term.

Leasing Disadvantages:

• The car is not yours. It must not be changed permanently.

• Mileage limits can become problematic and expensive if mobility needs change.

• Loan interest and/or hidden costs increase the leasing rates.

• Often no discounts for new cars.

• Running costs and extra expenses can break the budget.

Car Subscription Advantages:

• Maximum flexibility thanks to customizable terms.

• Cost transparency thanks to installments that also include running costs.

• No interest payments.

• Flexible mileage packages to suit every mileage.

• Large selection of makes, models, and equipment.

Car Subscription Disadvantages:

• The car is not yours. It must not be permanently modified.

• Surcharges for premium insurance and other services are possible.

The CARIFY Car Subscription

Huge selection, and low prices: CARIFY cooperates with over 400 garages and car dealers throughout Switzerland. This enables us to offer you the best conditions, including our inclusive services. Further advantages are the terms of between 1 and 48 months, the tailored mileage packages, and the availability of service and partner garages. With a car subscription from CARIFY, you can calculate your costs precisely and change your vehicle at will.

Conclusion

Savers can actually make real car bargains with 0% leasing if they know and pay attention to the cost traps. However, you can still get into payment difficulties with installment payments if you have not calculated the running costs well enough. This also applies to car financing. Play it safe with the flexible car subscription from CARIFY. It's not for nothing that we call our service the all-around carefree package. With us, everything is included in the subscription price apart from the fuel, without any down payment.

FAQs

How does 0% leasing work?

The lessor does not add any interest to the leasing rate.

Does it make sense to lease a car as a private individual?

Yes, if you want to drive a new vehicle with low monthly payments.

Is it possible to lease without interest?

Yes, the 0% leasing can be interest-free, but it doesn't have to be. Pay attention to the conditions in the contract.

What is the current leasing interest rate?

Leasing interest rates vary depending on the company. They can range from 0 to 8.9%.