Leasing Advantages and Disadvantages at a Glance

As an alternative to buying a new car with financing, many people prefer to conclude a leasing contract. The installments are lower, and at the end of the contract term, you can return the car and lease a new model as you wish. However, leasing does not only have advantages, as the following article shows.

Leasing Basics

What does leasing mean and what is the difference between a leasing contract and car financing? After all, you have to pay a monthly installment for both. We explain it to you.

What is leasing?

Leasing is a form of rental agreement. In return for a monthly payment, the lessor gives you its property - a car - for your exclusive use. The normal running costs for the car are added to the monthly leasing installments:

• Taxes

• Insurance

• Service

• Seasonal tire change

Important to know: When leasing, the lessor usually requires you to take out comprehensive insurance, usually even fully comprehensive insurance. You may also be required to take out residual debt or leasing installment insurance to cover the remaining leasing installments if you are no longer able to do so.

Various forms of leasing are offered; these are the most common:

• Mileage leasing: You may not exceed the mileage you have specified per year. The amount of the leasing rate is based on this, as cars that are driven a lot are subject to more wear and tear. If you exceed the mileage, you will have to pay dearly for the extra kilometers. The compensation for unused kilometers is much lower.

• Residual value leasing: The lessor sets the so-called target residual value that the vehicle must have at the end of the leasing period. Suppose the car is worth less at this point (e.g. due to damage or other loss of value or an overestimated target residual value). In that case, the lessee must pay the difference between the actual value and the target residual value.

Leasing Compared to Buying

Leasing contracts can be concluded for periods of between one and five years. The depreciation of the vehicle is allocated to the monthly installment. New cars with short contract terms have the highest rates, as depreciation is highest in the first year. At the end of the contract, you return the car. Further payments may then be due, for example for additional mileage or a residual value that is too low.

When you buy a car, the vehicle becomes your property as soon as you have paid the last installment. Of course, you can use the car before then. The monthly installments for financing are usually higher than for leasing. Sometimes there is also a high final or balloon installment, which means that the installments are lower over the term of the loan. However, it is not always easy to come up with a balloon payment of a few CHF 1,000. The loss in value of your financed vehicle becomes noticeable the moment you want to sell the car again.

The Advantages of Leasing

Leasing is popular for a reason: it's a particularly cheap way to drive not only new cars but also young used cars. Cars are less susceptible to repairs in the first few years, so you don't have to factor in too many costs from this side. Find out here what other reasons there are for leasing.

Financial flexibility and low initial investment

You can drive a new car without having to pay the full purchase price or make a large down payment. This gives you more leeway for your finances.

Constant availability of current models

Nothing beats a shiny new car on your doorstep! Leasing makes it possible. You can often even configure your leasing car yourself and put together the equipment you want. After a few years, you return the vehicle and get a new model. This is why leasing is particularly popular in the business world, where an attractive car is part of a serious appearance.

Manageable monthly installments and planning security

The leasing installments are pleasantly low. This means you can afford a larger car from time to time. As the installments always remain the same, you can plan your budget well.

Tax benefits for entrepreneurs

Company cars or the company's own fleet of vehicles are often leased instead of investing huge sums in new cars. The loss of value in particular makes this form of tied business asset unattractive. The leasing rates for vehicles used for business purposes are tax-deductible.

The Disadvantages of Leasing

Unfortunately, leasing also has its downsides - many have to deal with opaque contracts. With the tempting 0% leasing, you have to expect that you will not receive any attractive discounts from the dealer or that the installments will be higher. The bottom line is that you may even end up paying more compared to leasing with interest. You also have to accept these disadvantages:

Restricted use and right of determination

You may use the vehicle during the leasing period, but it does not belong to you. The lessor remains the owner. You also have to limit yourself in terms of mileage. This can be a problem if your professional or private situation changes and you suddenly have to drive more. The lessor can tell you when you have to take the vehicle for an inspection - and to which garage.

Additional costs and fees at the end of the contract

You can often expect nasty surprises at the end of the contract if the lessor suddenly charges you unexpected fees or wants to impose other costs on you, such as for additional mileage or damage.

Possible problems with early contract termination

Suddenly the job is gone or the family grows - then the leasing rate or vehicle no longer fits your life. It is possible to get out of a leasing contract early, but it involves effort and costs. Above all, the lessor must agree to the extraordinary termination. As a rule, they will demand compensation from the lessee for the loss of income, as well as for the costs associated with the termination. This will not help you if you have a financial bottleneck.

If you're lucky, the lessor will agree to take over the lease. Your current leasing contract will then be transferred to another contractual partner who will take over all your rights and obligations under the contract. You will usually incur extra costs for expert opinions on the condition of the car.

Leasing for Private Individuals and Companies

As leasing is a long-term commitment and involves a lot of money, private individuals and companies must meet a number of requirements for the leasing contract to be approved.

Special aspects for private leasing

Private individuals must prove their creditworthiness in a credit check. In addition to regular income, a permanent employment contract and assets play a role. Anyone with entries in the debt enforcement register will find it difficult to conclude a leasing contract. Unlike the interest on a consumer loan, you cannot deduct the leasing installments from your taxes.

Advantages and disadvantages of corporate leasing

A company-owned vehicle fleet means a lot of tied-up capital for companies, which is also subject to significant depreciation. Good reasons to procure company cars through company leasing.

Buying vs. Leasing vs. Car Subscription

Vehicle purchase, leasing and car subscription - which is best? You can only answer this question based on your individual needs. We at CARIFY will show you the most important aspects to make your decision easier.

Long-term cost analysis

Whether you buy your car and finance it with a loan, lease it or opt for a car subscription: You have to pay monthly installments. These vary depending on the price of the vehicle and the term of the loan - and are usually higher than with leasing. At first glance, the leasing model is also ahead of the car subscription, but you have to consider the included services.

With a car subscription, the ongoing vehicle costs are already included in the monthly payment. With leasing, you have to pay the insurance premiums as well as the costs for taxes, services, repairs and tire changes in addition to the monthly payment. With a purchased car, you are also responsible for this yourself. Due to favorable collective conditions, a car subscription is the cheapest in the end.

Aspects of ownership and loss of value

When you buy a car, you can customize it and drive it as much as you like. You pay for this freedom with a considerable loss in value. In the first two years after new registration, cars lose around half their value. Lease and subscription cars are only on loan and are subject to restrictions. It would be best if you compensated the lessor for the loss in value. With a car subscription, the loss in value is also included in the rate.

The CARIFY car subscription

Probably the most important difference between a car subscription and leasing is the term. At CARIFY, you can take out car subscriptions from 1 month, but also for 48 months. Our mileage packages are just as flexible and can be adapted to any mobility requirement. The following advantages await you with CARIFY:

• Full cost transparency with no hidden fees or final installments

• One installment, all-inclusive

• First-class service

• The largest selection of all Swiss car subscription providers

• A nationwide network of partner garages

Conclusion

Leasing allows you to drive a new car without a down payment. However, this model also has its risks. A modern and more flexible option is the car subscription, which combines the advantages of leasing but without many of its disadvantages. Individually selectable terms, monthly notice periods and full cost transparency make the subscription model the comparison winner.

FAQs

When does leasing not make sense?

• If you need to be able to change your car flexibly.

• If your mileage changes several times during the leasing period.

• If your life circumstances could change.

What is the problem with leasing?

Opaque contracts and hidden costs harbor major cost risks for lessees. If you want to get out of a leasing contract early, you have to rely on the goodwill of the lessor. Compulsory insurance and workshop commitments increase the running costs.