Leasing vs. car loan. What to choose?

Leasing and car loans are the two most common ways to finance a vehicle. The exception, of course, is when you have enough money saved up and can buy a vehicle on your own, whether you pay cash or through internet payments. However, if you don't have enough money, there are three different options.

• Car Loan
• Financial leasing
• Operative leasing

Each of these products has its own specific characteristics and brings certain pros and cons. Therefore, there is probably a different solution for each of you. If you are not sure what is best for you, read the following lines.

Car Loan

This financial product probably needs no lengthy introduction. Its name is quite telling. You can use it for buying a new or used car. It differs from leasing mainly in its characteristics. A car loan is primarily a matter for banks. However, non-bank providers are no exception.

Subject	Value
The owner of the car	Customer
Accounts	Not
Car service	Customer
Compulsory liability	Customer

The car loan actually provides you with the funds and everything else is up to you. You have to take out compulsory liability or breakdown insurance. Any servicing associated with the vehicle will follow you, by the way. This can be sold at any time and the money refunded. You are the rightful owner.

Purpose-built car loan

The car loan described above may be for a purpose and not for a purpose. Especially with the former, you will encounter one crucial thing. You often have to guarantee new and used cars. This means that you are not the owner during the repayment period.

The advantage of a car loan is that you can dispose of it as you wish.

Peter S., owner of the car dealership.

All of the above positives have a downside. A car loan is usually associated with a more complicated administrative process. You have to prove your creditworthiness. In short, it's like going to the bank for a consumer loan.

Leasing as a different type of loan

All of the options described in this article are actually a type of loan. Leasing, however, falls into a slightly different category. It is offered primarily by leasing companies and are mainly linked to different conditions of acquisition. It also has different advantages and disadvantages.

• With leasing, you don't own the car you are buying
• Its owner is a leasing company
• Until the end of the contract

Ownership is probably the biggest difference between leasing and borrowing for a car. This alone should be one of your initial decision parameters as to what you ultimately prefer. Of course, there are other things that come on top of ownership rights.

Financial leasing

First of all, you should understand that there is no such thing as leasing. We will first focus on the financial one, which may involve, among other things initial fees for the conclusion of the contract. Compared to a car loan, you can see quite a few major differences. These may suit some people and not others.

Subject	Value
Accounts	Yes
Car insurance	Included in instalments
Vehicle maintenance	Customer
Age of the car	New car only

With a finance lease, you have to pay an initial down payment. This can be as much as 30 % for most providers. However, compared to a loan, you will not have to pay any additional upfront costs to buy a car.

Finance lease details

One of the disadvantages of financial leasing is the aforementioned payment of the mandatory liability within the monthly instalments paid to the leasing company. In this case, you cannot claim your bonuses from your home insurance company. The same applies to accident insurance.

Lease insurance can become an unnecessarily higher cost for you due to unrecognised bonuses.

Harry S., insurance adjuster.

Some leasing companies are willing to forgive or reduce the size of the initial down payment. However, you have to expect a higher interest rate to be reflected in your monthly payment.

Operative leasing

If you look into the product offers of leasing companies, you will find one more type of leasing besides the financial one. Its imaginary offshoot is operating lease. When you hear this expression at a car dealer, you can be sure that it is some form of car rental.

• You pay regular monthly instalments
• The contract is for a limited period of time
• The instalment includes all the essentials

The amount of the monthly instalment includes the leasing company's interest, car insurance, including breakdown insurance and, last but not least, the cost of the complete servicing of the car. This is one of the main differences with finance leases.

Operating leasing - What else should you know?

This type of leasing basically handles everything related to the car for you, so You don't have to worry about anything and just use a specific means of transport. These repairs and regular servicing can only be carried out at an authorised workshop.

Subject	Value
Length of lease	Usually 3 to 7 years
It is necessary to take out accident insurance	Yes
Ownership of the car	Tenant
Early termination of the contract	Penalty fees

Operating leases by their nature will obviously suit many individuals. It is primarily prevalent in the commercial segment. In recent years, however, it has also gained an increasing number of supporters in ordinary households.

Disadvantages of leasing

For operating leases, expect a certain tie-up period. This means that if you decide to end the lease early, you usually have to pay penalty feeswhich are not small. Since the car is owned by a leasing company, there is an additional risk. And that is the bankruptcy of the leasing company, after which you would most likely lose the vehicle.

Leasing is also linked to the restriction of persons driving the car. You can't lease a car to just anyone. The persons are usually specified in the contract.

Jack S., owner of the leasing company.

You should also be prepared to take care of the vehicle yourself to some extent. If you damage it, the leasing company may end up charging you a significant amount for repairs. This is influenced by having any faults dealt with by an authorised repairer.

Car loan or leasing?

A question on which you should have at least some clarity after reading the above lines. If we were to give a general summary, it would be quite clear. Leasing is definitely an option that will free you from any worries about the car, easier to get, but more expensive. While a loan is more complicated in terms of credit approval, on the other hand, you have unlimited options when dealing with the vehicle you own.

Questions and Answers

Are you still wondering whether to go down the leasing route or prefer a conventional car loan? Then we have prepared questions and answers for you, from which you can find out a lot. Perhaps this information will help you make your decision easier.

Leasing is not for everyone

As you can correctly guess, leasing and car loan aren't for everyone. The two loan products will appeal to slightly different groups of car buyers. But the important thing is that you can choose. So if you don't have enough money of your own for a car, there is an adequate way.