Car leasing is becoming more and more popular. What has long been common practice among the self-employed and entrepreneurs, in order not to tie up capital and to take advantage of tax benefits, is becoming a best-seller among private buyers. More than 20 percent of all private buyers now opt for leasing as a form of financing.
Even though private buyers must make a down payment of at least 20 percent of the list price, there is one decisive advantage to leasing for private customers. You have to make a much lower equity investment than with a cash purchase.
What is leasing?
the term "leasing" is english and means "renting" or "leasing". Leasing, as a form of financing, means that the user rents, not buys, a used object. The lessor procures and finances the leased item and the lessee uses this item in return for payment of a fee.
Leasing can be found in all economic sectors. Private individuals generally use it for car financing. The lessor remains the owner of the vehicle, the lessee the user. This means that the lessee is not allowed to modify the vehicle without further notice. The leasing rate is based on the useful life of the vehicle, the presumed loss in value due to wear and tear, and the one-time payment that has to be made at the outset. At the end of the agreed lease term, however, the lessee has the option of purchasing the car in return for payment of the residual book value.
Leasing companies offer different contracts, not only for cars. The contract can include only the rent for the leased object, but can also represent a so-called full-service contract. In this case, the leasing rate includes, for example, the cost of inspections or the insurance premium.
The lessor, as the owner of the vehicle, may well dictate to the lessee which workshop must carry out the inspections or repairs. If he also offers to insure the car, he also chooses the insurance company.
In contrast to an installment loan, the leasing rate is subject to value-added tax. For private individuals, this can mean that leasing will end up being more expensive than a classic car loan.
Car leasing
Leasing as a form of financing for a car is becoming more and more popular due to its structure and possibilities as well as the possible money savings compared to other forms of financing.
Furthermore, the monthly rates for leasing are often lower than for financing. This is illustrated in the following table:
Take a look at our example. We assume the following conditions:
list price of the car: 20.000,- euro
down payment: 20% of the list price
term: 3 years
eff. annual interest rate: 4% p.A.
| list price | 20.000,00 € | 20.000,00 € | 20.000,00 € | 20.000,00 € |
| – discount of 15 | 3.000,00 € | – | – | – |
| = cash price | 17.000,00 € | – | – | – |
| down payment of 20 | – | 4.000,00 € | 4.000,00 € | 4.000,00 € |
| + rate per month | – | 472,00 € | 269,00 € | 210,00 € |
| = investment costs after 36 months | 17.000,00 € | 20.992,00 € | 13.415,00 €* | 8.824,00 € |
| liquid assets ** | 3.000,00 € | 0 | 6.585,00 € | 11.176,00 € |
| + interest yield at 3.8 % p.A.Total | 342,00 € | 0 | 750,69 € | 1274,06 € |
| = total savings | 3.342,00 € | 0 | 7.335,69 € | 12.450,06 € |
| with the following result: | car owner | car owner | decision is made after 35 months 8.000,- € final installment vs. Financing for car purchase 0,-€ on return of the car. |
No car owner if you do decide to buy: final installment of 10.000,- €. |
* calculation with 35 monthly installments
** list price minus discount or. List price minus down payment minus monthly installments
Reasons for leasing a car
There are many reasons to choose the financing form of leasing. This can be, for example, that you do not have to worry about the remarketing or also that you can finally drive your dream car. Of course, a current model at fixed rates can also be a decisive reason for leasing a car.
Other car lovers prefer to change the vehicle and the brand more often, and for another leasing is simply cheaper than buying or financing. So it depends again on the individual situation in life, which influences the decision.
In our graphic, we now show you which reasons in the population in percent speak most strongly for leasing.
as you can see, the idea of "i don’t have to worry about remarketing" is very common. This idea is the biggest reason for leasing among the population.
Individual cases also account for a considerable part of the result. So there are many other reasons to choose leasing.
The argument "I can finally drive the car I want", on the other hand, scores somewhat lower. The other reasons follow with lower percentages.
Leasing or financing?
For many people, the question is whether they should rather finance or whether it is better to lease? But which method is really the most advantageous for the consumer?? So which option should be preferred? the most common use case where a private person will ask this question will probably be the search for a new or used motor vehicle.
Well, let’s start by saying that there is no one-size-fits-all answer to this question, because both methods have their advantages and disadvantages. In the following, we will discuss both methods and explain the advantages and disadvantages of each of them.
Leasing
© katarzynabialasiewicz / istock / thinkstock
In the case of leasing, the customer merely acquires the right to use an object (a thing), without acquiring it himself, i.e. without acquiring ownership of it. After the agreed term of the leasing contract, the object is usually returned to the lessor.
However, it can also be taken over for a corresponding down payment. the customer usually has the choice of paying a larger installment at the beginning of the leasing period or prefers to work with somewhat higher monthly installments.
Since a leased item is only provided for use, as mentioned above, it cannot be worn out indefinitely – which is why it is absolutely common to stipulate fixed usage requirements in a leasing contract (in the case of car leasing, for example, the number of kilometers allowed per year).
If the driver drives more than the agreed kilometers, then he has to pay a penalty fee for each of these kilometers. If the driver takes over the vehicle at the end of the leasing period, this payment is no longer necessary.
Leasing installments have the positive side effect that they can be deducted directly from taxes, provided that the driver is entitled to do so. leasing is therefore a very popular way for self-employed people to reduce their operating profit.
With leased vehicles the afa (depreciation for wear and tear) is not applicable. Private customers, on the other hand, cannot claim leasing installments against tax, so the amount of the total payments over the term of the contract is of primary importance for them.
Financing
© deklofenak / istock / thinkstock
In the case of financing, the customer acquires a thing, but takes out a car loan to pay for it. For the repayment of the loan the financed object is sometimes bound as security.
It then belongs to the borrower, but in the event of non-repayment of the loan, it becomes the property of the financing bank, which will use it to satisfy its outstanding claims.
Financing is usually provided by all banks. Financing installments may not be directly deducted from taxes. In the case of financed vehicles, a depreciation for wear and tear (afa) has to be made.
The vehicle is generally depreciated over 5 years, either at constant rates or at declining-balance rates. The best way for those entitled to deductions to determine which model is more suitable for their own balance sheets is to consult a tax advisor.
As you can see, it is extremely difficult to make a general statement about which method is more suitable for a private customer. It always depends on the individual situation which method turns out to be more favorable.
For the self-employed, the leasing method is usually better; for the non-self-employed, you have to look at the following: if the item is to be returned after the contractually agreed term anyway, everything speaks in favor of leasing. If, on the other hand, the vehicle is to be kept, then financing is often more favorable.
Car loan
Leasing for self-employed persons
The advantages of leasing for the self-employed are obvious. On the one hand, cash reserves are conserved and the company remains liquid in this way. On the other hand, the leasing rates, all operating costs (gasoline, car wash, inspections) and vehicle insurance can be claimed as business expenses.
Also repairs, accessories (alloy wheels, spoilers, and speakers) and the rent for a garage or a garage. A parking space can be fully deducted. Various administrative offences are not deductible, even if they occurred during a business trip.
Interest on debts incurred when buying on credit is deductible in the respective year of payment. In addition, the special lease payment immediately reduces the full tax burden for those with a surplus. Those preparing the balance sheet must distribute the special lease payment over the lease term.
The useful life of a car is usually six years. For used cars, the acquisition costs are spread over the expected remaining useful life of two to five years.
Furthermore, self-employed persons can deduct the input tax included in the purchase price separately and in full in the year of purchase. declining balance depreciation only applied to vehicles registered up to 2007.
The state thus participates in part in the new car. But how much the state subsidies depends on the car model and the income of the self-employed or freelancer. We have compared three leasing offers below:
| gross income | 90.000,00 € | 90.000,00 € | 90.000,00 € |
| gross list price | 38.950,00 € | 55.037,350 € | 40.800,00 € |
| down payment 20 | 7.790,00 € | 11.007,50 € | 8.160,00 € |
| leasing rate per month | 429,49 € | 721,87 € | 476,00 € |
| tax portion of the deductible down payment and twelve leasing installments |
12.943,88 € | 19.669,94 € | 13.872,00 € |
| other car expenses | 9.400,00 € | 14.000,00 € | 12.800,00 € |
| taxable income in 1. Year | 67.656,12 € | 56.330,06 € | 63.328,00 € |
| income tax assessment (manager, single) | 20.501,00 € | 15.744,00 € | 18.683,00 € |
| tax advantage* in 1. Year of purchase of the car | 9.385,00 € | 14.142,00 € | 11.203,00 € |
| source: focus money | |||
* compared to 29.886,00 € pure tax liability at 90.000,00 € income without deductions
However, it should be noted that the chosen vehicle must be "appropriate". So the tax office accepts a classic station wagon rather than a racy sports car. But there’s nothing wrong with a marketing strategist driving a big 7 series BMW.
A craftsman would hardly have a chance with such a car. However, should the tax office determine that the income does not justify an S-class mercedes and that a C-class costing half as much would be more appropriate, the self-employed person can only deduct half of the leasing payments. However, the operating expenses are not affected, they can still be fully deducted.
The tax authorities pay particular attention to company vehicles that are also used privately. This means that the private portion has to be taxed by the company itself. This is done according to the 1 percent rule or via a logbook.
Caution! "the lump-sum taxation, which is more advantageous in many cases, is only permissible if more than 50 percent of the car is used for business purposes," warns tax consultant thomas nothen. The self-employed must prove this for at least three months at the beginning. For this purpose, it is sufficient to note business trips informally with the purpose, the kilometers driven and the mileage at the beginning and end of the trip.
Mr. nothen continues. "in addition to business trips, all journeys between home and the workplace are also considered business use for this proof".
Leasing advantages for companies
In the past, "more salary through more performance" applied. But this formula has not applied for a long time. The government is to blame. Because after taxes and social security contributions have been deducted, the employee doesn’t have much left over.
So companies stop trying to pay even higher salaries and give employees a company car. Angela Bohm, managing director of the market research institute dataforce, says: "the company car increases the willingness of employees to perform immensely."in addition, the identification with the company increases to the same extent and the employee is thus bound to the company in the long term.
Word of these advantages of a company spreads quickly among professionals and they are thus attracted to them. Almost one in three is convinced that a company car increases the attractiveness of their workplace. The following statistics underscore this:
In addition to these social aspects of a company car, there are also many economic reasons that speak in favor of company cars. The company incurs lower ancillary wage costs and the leasing rates for the company car are operating expenses that are tax-reducing.
According to a study by TNS infatest, one in four companies would like to order more leased vehicles in the future. The leaders here are the consulting and IT sectors, followed by the manufacturing industry.
In addition, full-service leasing is becoming more and more popular among companies. According to TNS Infatest, 55 percent would opt for this leasing option. The advantage of this all-round service is that you no longer have to worry about anything with this car. Everything is included, from inspections and fuel to insurance and damage management.
"such comprehensive service drastically reduces administrative expenses and thus saves a lot of personnel," says dataforce manager bohm. According to TNS infatest, 62 percent of companies with 20 to 50 employees would take advantage of full-service leasing.
the more cars in one’s own fleet, the greater the self-administration effort becomes.
That’s why more and more companies are deciding to outsource their entire fleet management to the leasing company. According to industry experts, outsourcing the fleet should save around 20 percent of the cost of their cars.
Dealer participation
© ocskaymark / istock / thinkstock
time and again, we hear from disgruntled car buyers who, at the end of a sales meeting or on the sly, are foisted with a dealer’s fee. We would like to explain to you what dealer participation is and how it comes about.
Many car dealers advertise extremely favorable financing offers. In some cases, loans are offered at an interest rate of 0.0 percent. These special offers are supported by car manufacturers or their house banks. But since they don’t want to give away any money, the car dealers have to participate in subsidizing the car loan.
So you have to pay a certain percentage to the actual lender, i.e. the house bank or the manufacturer. As a rule, these dealer contributions are between 1.0 and 2.5 percent of the net loan value; in individual cases, they may be higher.
A spokesman for the central association of the german motor vehicle trade said that car dealers usually recoup a certain portion of the dealer’s contribution from the customer.
This is usually either hidden in the monthly rate or the car buyer is sent an invoice for the above-mentioned dealer contribution a few weeks after signing the contract.
This clause was so cleverly hidden in the purchase contract that no customer could find it. Since most dealers do not openly disclose this participation, there are often differences between the car dealer and the customer.
Residual value or mileage leasing?
© siphotography / istock / thinkstock
There are two leasing models available to you for leasing a passenger car: one is the residual value settlement (multi-revenue model), the other is the mileage settlement.
With residual value leasing, a fixed residual value (repurchase value) of the car is calculated before the start of the contract, which is expected to be the value of the car at the end of the lease term. The only problem is that the lessee is responsible for achieving the agreed residual value himself.
If, at the end of the term, the residual value of the car is estimated to be lower than stated in the contract, the lessee is asked to pay up. The latter must then pay the lower vehicle value in full. For the customer, this naturally represents a very high risk, because the lessor determines the residual value at the end of the term.
If, at the end of the term, the vehicle is worth more than previously calculated, the customer receives approx. 75 percent of this added value paid out. The remaining 25 percent is actually paid to the lessor. However, if you sign a new leasing contract immediately afterwards, you will also receive the remaining 25 percent as a credit note.
Recently, however, more and more lessors are passing on the full surplus value to their customers.
In the mileage calculation, the contract specifies how many kilometers may be driven with the car during the term of the contract. The kilometers indicated there are decisive for the monthly rate of the vehicle.
At the end of the term, excess or low mileage is accounted for, so that the lessee gets money back or has to pay it in arrears. Mileage of up to 2.500 km above or below the agreed mileage not taken into account.
In contrast to residual value leasing, the customer is not obliged to achieve a residual value in the case of mileage leasing. If the car shows only normal wear and tear due to its age and service life, no extra costs are due at the end of the contract. This makes it easy to estimate the financial burden of leasing.
It only becomes problematic if the vehicle shows more than just the usual wear and tear due to age and running time. Because then the customer has to pay. However, since there are no valuation criteria for assessing the overall condition, this often results in differences between the lessee and the lessor.
If the lessor is convinced that the vehicle shows excessive signs of wear and tear, he must also prove this conclusively. The onus of proof here is clearly on the lessor. Slight scratches do not count as excessive wear and tear.
If you compare the residual value calculation and the mileage calculation, the advantages and disadvantages quickly become clear. We have summarized these for you once again in the following table:
- Particularly suitable for business leasing, as the mileage cannot be estimated
- Usually more favorable monthly installments
- Particularly suitable for private leasing, since the mileage can be estimated
- Calculable risk with car leasing
- Unpredictable risk when leasing a car
- Lessee is responsible for achieving residual value
- facts about assessment of overall condition are unclear
- Usually higher monthly payments
Full amortization contract: cost trap with car leasing
With car leasing, you basically have the choice between partial amortization contracts (TA contracts) and full amortization contracts (VA contracts). Amortization here means covering the acquisition costs of the leased object from the income generated by it. For leased assets that depreciate quickly, such as software, copiers and printers, VA contracts usually make a lot of sense. However, this is not the case with car leasing and can be very disadvantageous for the lessee. That’s why bafin examines full amortization contracts in car leasing and looks to see whether customers have been advised correctly. In the event of irregularities, bafin is forced to intervene.
But why are VA contracts for car leasing often so disadvantageous?? The lessee amortizes the full purchase price and all related ancillary costs of the lessor during the useful life of the vehicle. He must return the vehicle at the end of the contract. The purchase price of a leased vehicle, for example, could be 50.000 euros, and the lease payments to the lessor plus special payments over a four-year lease period would be around 58.000 euro. At the end of the lease term, the value of the car could be as low as 25.000 euro.
After this period the lessee has not only paid more than the purchase price in case of full amortization – he also has nothing left of it, the car is gone. The lessor, on the other hand, is of course jubilant, having the purchase price, ancillary costs, a profit margin and a vehicle with a high residual value in his pocket.
In the case of a leasing contract with partial amortization, however, the lessee would only, as the name suggests, have amortized part of the acquisition and ancillary costs via his payments. Only if the lessee had purchased the leased vehicle at the end of the contract by paying a purchase price would there have been full amortization despite the VA contract – without such a disadvantage.
In this case, a VA contract without a purchase option is significantly more disadvantageous for the lessee than a TA contract. Nevertheless, such contracts are concluded time and again. Therefore, it is necessary to check the depreciation of the leased object and to see which amortization is actually the better variant. If you are unsure, you should consult a specialist to check the contract before signing it. Furthermore, purely verbal promises made by the lessor should not be relied upon; only the contractual components count legally in the event of a dispute.
Car loan as an alternative
Leasing may not be the better option, but a car loan instead. Both options should be carefully compared and offers obtained. Using the following form, you have the opportunity to request offers for a classic car loan conveniently, free of charge and without obligation. Simply enter the data requested and you will find out at the end which bank can offer you the most favorable interest rates. Comparison saves money! Alternatively, you can directly use our clearly arranged car loan comparison.