Company car: leasing or financing? You should know that!

Not only among permanent employees, an attractive company car is high on the wish list. The self-employed can easily fulfill their vehicle wish themselves.

In addition to the good feeling to drive the dream car, it gives prestige and has tangible benefits: it is procured through the company and can be used for private trips. There are some pitfalls that you should not trip over.

Buying or leasing a company car – what’s better?

Buying or leasing a company car - what

You are an entrepreneur and need a new company vehicle? Then you are usually asked the question of which type of purchase is the better for you, purchase or lease. Leasing is a special form of rent: the lessee does not own the vehicle. Buying with financing means that two contracts are concluded: a purchase agreement that gives ownership of the vehicle and a loan agreement to finance the purchase price. Both contracts are basically independent of each other.

Leasing is better if the monthly burden should be as low as possible

Leasing is better if the monthly burden should be as low as possible

 If you want to keep your monthly burden as low as possible, you have the advantage of leasing, because the entire purchase price is not paid within the lease term. After three years, the residual value is around fifty percent of the original price, because only these fifty percent are repaid. As a result, your monthly burden will be significantly lower than if the vehicle was financed over the same period. If you choose a longer financing period than leasing, for example, six years, the monthly charge may again be lower than for leasing. If you want to give up a loan for car financing as a private individual, you should pay special attention to the different fixed interest rates of the providers and not make a random decision.

Leasing with kilometer or residual value contract?

Leasing with kilometer or residual value contract?

You can choose between two types of leases: mileage and residual value contract.

1) In the case of residual value contracts, a specific vehicle residual value is determined for the end of the lease term, which serves as the basis for calculating the leasing rate. At the end of the contract then an evaluation of the vehicle takes place. The resulting value is decisive for further processing. If the actual value of the returned vehicle is less than that specified in the contract, you, as the lessee, must compensate the difference to the dealer. This risk should not be underestimated because no one can predict how used car prices will develop in the next three years. Residual value contracts are therefore generally to be discouraged. When comparing multiple leases, you should compare not only the leasing rate but also the fixed residual values.

2) It’s different with the kilometer contract. Here you conclude a contract for a certain mileage during the lease period. After that, you simply return the vehicle and have nothing to do with the risk of the residual value. A return without additional payment is only possible if the agreed mileage is not exceeded. Otherwise costs are due for each additional kilometer. The leases contain a goodwill agreement of 2,500 – 5,000 km ; exceeding this limit is possible without additional payment. It is advisable to calculate the mileage realistic at the conclusion of the contract, so that you do not have to refill at the end of the contract.

Make sure that your car is in good condition upon return

Make sure that your car is in good condition upon return

If you decide to conclude a mileage contract, be sure to return your vehicle in the best possible condition. Damage beyond normal wear and tear must be repaired prior to return. If you do not do that, the leaser dealer will ask the dealer for a report listing the expected repair costs for removing bumps, scratches, or upholstery damage. You, as the lessee, will then be fully charged for this amount.

Since the dealer is not interested in low repair costs, parts are often replaced, which actually should not necessarily be replaced. Before returning it, consider a smart repair : it is a cost-effective repair option, which can be dented, for example, instead of replacing parts or eliminating minor poster damage without immediately replacing the entire seat cover. So you can save a lot of money.

If possible, do not dissolve your lease contract before the end of the term

If possible, do not dissolve your lease contract before the end of the term

If for some reason you want or need to return your car before the end of the lease, you are taking risks. Because with the conclusion of the contract, you have entered into a contractual obligation, which must always be observed. Who leases for three years, must pay for three years. Even though it sometimes happens that the car suddenly does not like it anymore, that your family conditions have changed and a bigger model is needed or your company has to dismiss employees with a field service and a corresponding fleet because of economic slump.

If you then want to return the vehicles that are no longer needed, you are faced with the problem of not keeping your lease. The leasing company only releases you from the contract if you pay the corresponding damages. This could get expensive.

If the end of the leasing period is questionable, rather finance

If the end of the leasing period is questionable, rather finance

If you give your car back prematurely, you must have it assessed at the time of return. It may happen that the value determined is lower than the originally calculated residual value, so that a considerable payment is due in order to be able to withdraw from the contract. So, if you are not sure if you can actually keep the contract term, buying a car with financing is the better solution for you.

If you are indeed faced with the situation of having to return your car prematurely, you should look for someone to join your contract and continue it until the end of the contract. This will usually not work on the same terms you’ve completed because the car loses value the first year. However, you will still find it cheaper than canceling the contract and paying the required compensation. Your lessor will agree to the acquisition if the creditworthiness of the transferee is in order.

Leave a Reply

Your email address will not be published. Required fields are marked *