Who wants to buy a new vehicle, is often faced with the choice of how he should finance it. As a basic options are cash purchase, a vehicle loan or leasing available. All variants have different advantages and disadvantages:
Leasing a vehicle
Lease is a special kind of rent. When the contract expires, it is often possible to purchase the vehicle. Mandatory this is not. From a business perspective, a leasing contract is therefore very similar to balloon financing towards the end. If the car to own ownership, the residual value must be paid, which is set at the beginning of the contract and may be above the actual value of the vehicle.
At the beginning there are different possibilities. Meanwhile leasing without deposit is also possible for private persons. However, so the monthly costs increase and the duration of the contract can extend. Basically, it is recommended to invest one fifth of the vehicle value as a down payment.
- Damage during the contract period must be repaired in a workshop. Comprehensive insurance is therefore almost inevitable.
- For entrepreneurs, leasing rates are tax deductible, not for individuals.
- Allows to regularly drive current vehicle models.
- The leasing of a car is usually only possible if the vehicle is either as new or a maximum of one year old. Older used cars can be financed almost exclusively via the cash purchase or a vehicle loan.
- The term of the lease can not be flexibly designed or extended.
- A premature termination of the contract is not possible. In individual cases a replacement by a third party is possible.
- Uncomplicated return of the vehicle possible and planned.
- Fixed rates during the financing offer a high degree of planning security.
The car loan
Vehicle loans are among the most common loans for individuals in Germany. The fewest interested parties can raise the full sum in a cash purchase. That’s why most car dealerships work with banks or even operate their own house banks, which make the financing of a vehicle less complicated.
When it comes to car financing, there are three options in particular:
- Balloon financing: When buying a vehicle, only a small or even no deposit is required. Afterwards, buyers pay comparatively low rates. At the end of the contract period, however, a final payment is due, which may amount to around half of the vehicle value. Balloon financing is very similar to leasing. The advantage is that there is hardly any equity available. However, to pay the balance can mean a significant financial burden that the car buyer must prepare for.
- When paying in installments, the car buyer pays a fixed monthly amount. It offers the most payment security, but the terms are very long or the monthly load quite large. A deposit at the beginning of the contract is therefore always recommended and sometimes even mandatory.
- 3-way financing: The 3-way financing is similar to the balloon financing and is sometimes even equated with it. The essential difference, however, is found at the end of the contract. The buyer is given the opportunity to purchase the vehicle at a final installment, complete follow-up financing, or return the car.
Features vehicle loan
- In the vehicle loan, the car is purchased in contrast to the lease.
- The financing of a used car is easily possible, regardless of the residual value and age of the vehicle.
- The term can be made flexible. An extension is straightforward in the case of installment payments in most cases.
- The borrower has acquired ownership rights to the car and can easily sell the vehicle before the expiration of the contract.
- Also, the maintenance and service is the sole responsibility of the owner. However, a poor condition in either 3-way financing or balloon financing can be detrimental to the residual value of the car. Upon return of the vehicle, the buyer would have to pay for the difference.
- A return of the car is usually possible. However, the seller is not obliged to do so. Before the end of the contract period, however, the car is being taken back by many providers at market value.
The cash payment
Anyone who can take out an independent loan or even raise the full vehicle price themselves has a significant bargaining advantage.
Features cash payment
- Although the interest of the dealer credit is lower than that of the house bank, but by extras and discounts a price advantage can be achieved. With loans by the car dealer, however, so much accommodation is hardly possible. He has already made concessions through the favorable financing, so that the seller is in a much worse position.
- The dealer credits are also often tied to certain versions that do not allow special requests.
- An independent vehicle loan is more flexible and offers the opportunity to individually negotiate special repayments and final installments.
- If there is sufficient untied capital, it is also worthwhile to compare the possible investment rates with the lending rates. Under certain circumstances, a car loan through loans is still recommended.
Anyone who really wants to buy a car is best off with a car loan. The car is so permanently in the possession of the buyer and the rates are not “lost” as in leasing without subsequent purchase, but lead to added value. Especially for buyers who want to drive the car for a long time, this is the best choice.
On the other hand, anyone who puts more emphasis on regularly driving current models and selling their vehicle after a few years anyway is better off with leasing or 3-way financing. Even people who do not yet know whether they really want to buy the vehicle at the end of the term can choose this alternative.