When the purchase of a new car is pending, there is of course a lot to clarify. Then it’s a question of the make and model, the right engine, but also the right equipment. the next step is a visit to the dealership or a look on the internet – compare prices. At this point, at the latest, the question arises as to how the dream car can be realized as inexpensively as possible. A decision has to be made: buy, finance or lease a car? But when is it worthwhile?
The right type of car to buy is a question of type
Car enthusiasts have several options when it comes to buying a new car. Which type of purchase has the most advantages in your personal situation requires an individual analysis.
First of all, it depends on how important the topic of cars is for you. Are you the type who always wants to be on the road in an up-to-date model and therefore regularly changes your vehicle?? Or do you have your eye on a special car that will accompany you permanently for the next few years or even decades?? What about your finances? Do you have high savings or can you only draw on part of your monthly income for your new car?? in this article you will learn more about the advantages and disadvantages of leasing, financing and buying in cash and how to make the right choice.
By the way: car subscription offers a fourth option. This is a so-called short-term lease, which can be concluded for a period of three to six months, for example, and already includes all ancillary costs for insurance, taxes and other expenses. Includes. You can also find more information about the car subscription and suitable offers on leasingmarkt.
Car purchase: direct ownership with high discounts
you plan to keep your new car for a longer period of time and have the financial means to pay for it directly in full? Then you should consider the cash purchase option.
Why? When buying a car outright, you usually benefit from the high discounts that car dealers offer in this case. Discounts can often be as much as 10 to 20 percent. The reason is quite simple: in contrast to the two options of financing or leasing, with a cash purchase the dealer avoids the risk of a possible payment default on the part of the customer. The money is put directly on the table in the full amount. For this, the seller will gladly show his appreciation and lower the price of the vehicle in favor of the buyer.
In addition, a cash purchase is a very good basis for negotiation when it comes to attractive extras, such as additional equipment or the assumption of the registration and the associated costs. Even if you don’t have the necessary capital, you can still enjoy the advantages of buying a car in cash. The solution: taking out a loan from a third-party bank, which is then paid off in monthly installments, similar to financing.
Important: with a cash purchase you are making a big investment. This means that a lot of capital is lost in one fell swoop for the purchase of a car. The risk of getting into debt should not be underestimated. Especially people who have to service several loans at the same time (purchase of an apartment, dream vacation, etc.) have different options.), should make absolutely sure not to fall into the debt trap.
Car financing: buying your own car in installments
Another way to fulfill your dream of buying a new car is to finance it. If you want to own a car but can’t pay for it outright, an installment purchase is recommended. When it comes to financing, there are various options available to you:
- Financing through the manufacturer’s bank
- Taking out a car loan with the house bank
- 3-way financing
Financing via the manufacturer’s bank
In the case of financing via the car bank of the respective manufacturer, buyers often receive loans with attractive interest rates of only 1.0% or even less. What sounds tempting at first does not necessarily have to be the cheapest way to get the car you want. As a rule, a down payment or final installment (also known as balloon financing) is also required, and the terms are often not individually agreed.
Taking out a car loan with your house bank
Another way of financing a car is to take out a car loan with your own bank. The big advantage here is that you can act as a cash buyer at the dealership and thus negotiate attractive discounts, which you will most likely be denied if you finance through the manufacturer’s bank. Consequently, you do not finance the entire list price of the vehicle, but only the amount discounted by the dealer. Even though the interest rates may be higher than with the car banks themselves, in most cases you will get your desired vehicle cheaper this way.
3-way financing
With 3-way financing, the purchase price of the car is ideally paid in three steps:
- Down payment
- Payment of monthly financing installments
- Final installment, which is paid directly or converted into further financing
3-way financing includes an optional down payment that can be agreed individually with the car dealer at the outset. Then the duration of the installment payment must be determined. Next, the dealer estimates the residual value of the car at the end of the installment period. For this purpose, the buyer also specifies the approximate number of kilometers he or she is expected to drive during the term of the contract. The residual value calculated also represents the final installment, which is usually much higher than with traditional financing, where a large part of the vehicle price is covered by the monthly installments. After payment of the balloon installment, the car becomes the property of the financier. If the customer is unable to pay the final installment in one go or if the car is sold prematurely. If the customer has not built up any reserves, there is the possibility of follow-up financing. The residual value of the car is also paid in installments. However, refinancing is usually associated with higher interest rates and is therefore expensive for the buyer.
Important: if you opt for 3-way financing, you should have sufficient financial reserves to cover the upcoming final installment directly.
For those who are undecided: vehicle return with 3-way financing
A major advantage of 3-way financing – and thus also the decisive difference to "normal" car financing – is that the vehicle can be returned before the final installment is paid. However, the dealer checks whether the vehicle actually has the residual value determined at the start of the financing. If this deviates, for example, due to heavy signs of use or high wear and tear, the buyer is obliged to pay the purchase price, The customer pays the difference between the current market value and the previously agreed residual value. The mileage covered is also used as a basis for checking the residual value. Anyone who has driven more than the number of kilometers specified at the beginning of the contract must also compensate financially for this excessive use.
Important: please note that the purchase or financing of a car only pays off economically if the holding period of the vehicle is not less than five to seven years. Exceptions here are models with high value retention. If the car is sold prematurely, in most cases this is a minus transaction. As a rule, you can expect the car to lose about a quarter of its new price already in the first year, and in the third year it will be worth only half of it.
Car leasing: for all those who want to remain flexible when it comes to cars
You want to change your car regularly and are not interested in becoming a car owner? With so many vehicles on the market, it’s hard to know which to choose? If you don’t want to be tied to a model for a long time and want to avoid the risk of depreciation, you should take a closer look at the leasing option.
Vehicle leasing can also be very attractive from a tax point of view. However, this only applies to companies and professionals. The question of whether to lease or buy is usually answered quickly. Due to numerous tax and balance sheet advantages leasing is the most common choice for company cars. The low monthly payments and a small down payment are much less of a burden on the company account than a one-time large investment. If you buy the car in cash, the high purchase price is due immediately, but can only be depreciated over a longer period of time. The monthly leasing installments, on the other hand, are fully deductible and thus continuously reduce the tax burden. In addition, the company’s liquidity is preserved, as only a small down payment or none at all is required when taking over the leased vehicle.
However, not only companies and self-employed persons can benefit from leasing, it is also an attractive alternative to financing and cash purchase for private individuals.
More car for less money thanks to leasing
Vehicle leasing can pay off in many ways. The prerequisite is always that no car ownership is sought. The advantages become apparent as soon as the new car is ordered. The surcharge lists for new cars contain many additional features that make life in the car particularly pleasant. However, these special requests quickly add up to a considerable amount of money. If this total amount then also has to be financed, the monthly loan installments can reach unimaginable heights in no time at all.
With leasing, on the other hand, only the loss in value during the useful life is calculated. This means that, for the same equipment, the leasing rate is usually considerably lower than a corresponding credit rate. Here’s how leasing gives you significantly more car for your money. In addition, interesting special leasing offers can always be found on the Internet, which can save a lot of money. This means that even cars that are normally outside the financial scope come into focus.
New condition of leased vehicles and short contract terms protect against high repair costs
In addition, the lessee is free to decide how long he wants to lease the car. The contract terms are usually between 12 and 60 months. For those who value flexibility and like to switch to a different model on a regular basis, leasing is the right choice.
Always being on the road in an up-to-date model not only has image benefits, but also reduces the risk of costly repairs. Inconvenient and expensive workshop visits become more frequent as a car ages. New cars tend to have fewer technical problems than older vehicles. The risk of breakdowns and prolonged loss of use is much higher for used cars than for cars that have only been on the road for a short time. If a defect occurs in a new vehicle, it is not uncommon for it to be repaired under the terms of the warranty and guarantee. Many manufacturers already offer a multi-year warranty on their new vehicles. BWith a typical lease term of 36 months, the risk of repair costs is therefore quite low.
Important: since the leased vehicle is the property of the lessor, the lessor also decides where the car will be repaired in case of damage. Most of the time these are manufacturer workshops. Repairs that are not covered by the warranty (for example, as a result of an accident caused by the lessee) must be paid for by the lessee and can therefore be expensive, depending on the extent of the damage.
In addition, there are also so-called all-inclusive or full-service leasing offers, In addition to the warranty, maintenance, i.e. inspections and TuV visits, as well as insurance costs, registration and vehicle tax are already included in the rate. When comparing leasing, financing or cash purchase, this aspect is also important.
With leasing the depreciation does not play a role
Since you do not become the owner of the vehicle with leasing, but return it after the contractually agreed rental period, you do not have to worry about the stressful sale of the car. Unpredictable risks due to a change in the market situation and the associated unforeseeable reduction in value are therefore not your concern. If, for example, the value of diesel vehicles drops drastically due to stricter environmental protection regulations and the threat of driving bans, the leasing company, but not the lessee, has to bear the consequences. This applies in particular to the recommended mileage leasing, in which an individual mileage for the entire rental period is specified in the contract. Even if this is exceeded in the end, the lessee knows exactly what costs he will incur. In the case of mileage leasing, a flat rate for additional and reduced mileage will be charged for the additional service, which is specified in the leasing contract.
By the way: at the end of the lease term, the vehicle must be returned in a condition in accordance with the contract. The lessee must compensate financially for any signs of wear and tear that exceed the specified amount. Depending on the extent of the defects, additional, incalculable costs may be incurred. We therefore recommend that you take a look at our tips on lease return.
If personal problems arise that make it impossible for you to fulfill the terms of the contract, you have the option of handing over the vehicle early in the form of a lease transfer. In agreement with the lessor, a new customer assumes the liabilities and is granted the rights to use the car in return. In this way, you are released from the contract as the vehicle lessee and are thus free of further obligations.
Important: early termination of the leasing contract is usually not permitted.
You can also find out more about the advantages and disadvantages of leasing in our youtube series "leasing simply explained.
Conclusion: leasing, financing or cash purchase? The agony of choice
The purchase of a new car is not a decision that is made overnight. In addition to choosing the right model, you also need to find the right form of financing. Leasing, financing, cash purchase – the ideal way to get your next car naturally depends on your personal preferences and your own financial possibilities. If you want to commit to a specific vehicle for a long time, you can choose financing or cash purchase. For drivers who prefer to change their car every year, vehicle leasing is an extremely attractive alternative. If you have the necessary creditworthiness, which is also checked by the bank beforehand in the case of leasing, then there is no reason why you should not simply choose a leasing model instead of financing or buying a classic car.