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Buying a car: leasing or car loan?

One thing is clear; if the necessary money for the new car has been saved, the cheapest option is to buy a car. You pay no interest and you own the car from the beginning. When buying a car, however, we are always faced with the question of whether car credit or leasing is more advantageous. Although car leasing is still very popular in Switzerland. However, a car loan offers more advantages and is in many cases also cheaper.

What is leasing?

Lessees commit themselves to pay the prescribed leasing installments for the use of the car. In return, they are given the option to buy the car at a certain price at the end of the contract. In other words, leasing is a kind of rent with an option to buy. During the contract period, the car is owned by the lessor, while the lessee may use it under certain conditions (number of kilometers, fully comprehensive insurance coverage, etc.). If you want to exercise this purchase option, you have to pay a high residual value before you own the car. If you do not wish to keep the car, lessees will charge you for any complaints about the vehicle or for the additional kilometers driven.

Leasing is nevertheless a popular method of financing a car purchase in Switzerland. At the end of 2019, the leasing volume was over 9.3 billion Swiss francs with over 648,000 leased vehicles (source: ZEK).

What is a car loan?

Personal loans to individuals that do not serve a professional or commercial purpose generally include cash loans, overdrafts, loans and certain forms of leasing, such as car loans. Private loans are also widely known in Switzerland under the term “consumer loans”. The use of such loans is not restricted to a specific purpose. Such consumer loans are particularly popular as car loans.

According to ZEK, the credit volume of private households in Switzerland in 2019 amounted to around 8.1 billion Swiss francs with just under 372,000 borrowers. This means that every 12th Swiss citizen in 2019 had a personal loan (measured by the working population).

Car loan or leasing: Which is better?

Car buyers are often faced with the decision “buy or lease” and “car loan or leasing”. A cost comparison in advance; 0% is not necessarily free of charge.

Comparison car loan vs. leasing calculation example
Leasing 4.9% Car loan 7.9%
Purchase price 30’000 30’000
Residual value 10’000
Financing amount 20’000 30’000
Interest rate 4.90% 7.90%
Term 48 48
Monthly rate 497.55 727.15
Total costs 23’882 34’903
Total costs after takeover of the vehicle (incl. residual value) 33’882 34’903
Difference 1’021
Less insurance savings* 800
Less tax-deductible interest** 490
Savings car loan compared to leasing 270

*According to a comparison, the fully comprehensive insurance for leasing is about 200 francs more expensive per year. **Assumption tax rate 10%.

Although the leasing interest rate is lower, the bottom line is that you drive cheaper with a car loan. Here is a small overview with the respective advantages and disadvantages.

Comparison car loan vs. leasing overview
Car loan Leasing
For new cars and vehicles as good as new Yes Yes
For second-hand cars Yes Often not possible
Possession Customer is in possession of the car from the beginning Bank. Only after payment of the residual value the property is transferred to the customer
Mileage limit No Yes, according to the contract.
Insurance cover Freely selectable Fully comprehensive insurance is mandatory
Interest and taxes Interest on loans can be deducted from taxes Leasing interest cannot be deducted from taxes
Premature termination Early repayment (without cost consequences) and sale of the car possible at any time. Premature termination of the lease only involves high costs.

Why then still leasing?

If you are not interested in owning a car and always want to drive the latest model, leasing is a good choice.

However, the bottom line is that with a car loan you often drive more cheaply and flexibly.

So what is better when buying a car? Car loan or leasing?

The big difference lies in the question of ownership. With a car loan, the customer is the owner of the car, but not with leasing. Added to this is the residual value at the end of the leasing contract. Here, lessors can often charge for complaints. Leasing is often also associated with conditions. For example, only a certain number of kilometers may be driven during the term of the lease. In addition, there is the obligation of a comprehensive insurance. It is known to be more expensive than partial coverage insurance. The advantages of car loans therefore outweigh those of car leasing in the vast majority of cases.