When you lease a motor car, you are essentially "renting" the vehicle for an agreed-upon term. You pay a monthly lease payment in exchange for the use of the automobile. At the end of the lease term, you return the car to the lease provider or, in some cases, buy it at a price equal to its residual value.
Leasing as a means of financing vehicles is very popular among Swiss drivers. The Swiss private auto leasing market was valued at 6.2 billion francs in 2015. But opting for a lease is only recommended after you have thoroughly researched any other financing options available to you.
Here’s a list of 10 key tips for car leasing in Switzerland by the moneyland.ch team:
- Cash is king: You can save money right from the start just by choosing your payment method smartly. When buying a car, as with many other purchases, cash is definitely king. The cheapest way to get behind the wheel of your dream car is to pay for it upfront in cash. Besides skipping out on financing fees and interest charges, you will find that many car dealers offer sizeable discounts to cash buyers. If you can’t afford to pay cash, you’ll have three more expensive options to choose from: lease a car, get a loan or work out a dealer financing plan.
Tip: Pay for your car in full and in cash if possible.
- The car doesn’t belong to you: Make sure you understand that when you lease a car, you do not become the car’s owner. Unless a special post-lease buyout option is included in your contract, you will not have the right to purchase the vehicle for its contractually stipulated residual value at the end of the lease term. So leasing is really long-term renting.
Tip: If you want to buy the car at the end of the leasing period, make sure a buyout option is included in the contract.
- Early termination: One major negative of car leasing is the heavy penalties which accompany early termination. If for any reason you terminate the lease ahead of schedule, you will have to pay sizeable charges.
Tip: Go over the contract’s terms and conditions relating to lease termination to get a clear idea of what you will pay if you opt out early.
- Lease term: Most lease contracts come with minimum lease periods of 12 months. Understanding that you will be bound to a lease for the duration of the term is especially important if you are considering getting a lease with a long term.
Tip: Think twice about whether or not you should consider a lease when looking for ways to finance a car. A lease is a long-term, binding commitment.
- Comprehensive auto insurance: Another disadvantage of leasing a car is that you will generally be required to take out a comprehensive auto insurance policy. Comprehensive insurance is expensive and getting this coverage for lower-value vehicles simply isn’t worth it.
Tip: The premiums you pay for the comprehensive auto insurance required by car lease providers can put a serious dent in your wallet.
- Lease contract obligations: A lease comes with a host of contractual obligations that keep you on your toes. These include rules regulating what types of servicing must be carried out and how often, and which garages can service the car. But obligations can reach much further than that. For example, you may not be allowed to take the vehicle outside of Switzerland.
Tip: Make sure to read the fine print before you sign on the dotted line.
- No tax deductions: The cost of leasing a car does not qualify as deductible on a Swiss tax declaration. Costs associated with a loan, on the other hand, can be deducted.
Tip: The interest you pay for a consumer loan can be included in your tax declaration, while leasing charges cannot.
- Leasing a car is expensive: Many auto lease holders underestimate the costs of their leases. The moneyland.ch leasing calculator gives you a clear idea of just how expensive leasing a car in Switzerland can be.
Example: Let’s say you took on a lease with a 5% effective interest rate. If the purchase price of your vehicle were 40,000 francs, you made a 3000 franc upfront payment and the residual value of the car at the end of the 3-year term was listed as 16,000 francs, your lease payments would come to 690.70 francs per month. Over the 3-year term, you would make 27,865 francs worth of lease payments, and the car wouldn’t even belong to you.
If you were to buy the car at the end of the lease period, you would pay a total of 43,865 francs for it. So the actual cost of leasing the car would total 3865 francs.
Add to that other direct or indirect costs associated with the lease, such as insurance premiums, and you’re paying a lot of extra money for the privilege of driving that car.
Tip: Before you lease a car, make sure you know exactly what you will be paying for the lease.
- Financing your car with a cash loan is often better than leasing.
If your creditworthiness is solid, the cost of getting a private loan can easily work out cheaper than the total cost of leasing a car. In the example of auto leasing costs given above, a personal loan with an effective interest rate of 5.9% would actually be a cheaper option.
Although the interest rate might be higher, the 37,000 franc personal loan (40,000 car purchasing price minus your 3000 franc upfront payment) would still cost you a lower 3368 francs. That’s 500 francs less than you would pay for the auto lease (assuming the lease provider agrees to sell you the car for its predetermined residual value at the end of the lease term). You can check this yourself using the moneyland.ch loan calculator.
But there are other good arguments in favour of getting a personal loan instead of leasing a car. The most important difference is that when you buy a car using a personal loan, you become its owner, which is not the case when you lease a car.
If you got a loan to buy your car, you can sell the car anytime you choose for as much as high a price as you can get for it. Then there’s the issue of all those annoying obligations that come with leasing a car, which you don’t have when you finance your car with a cash loan. Plus, interest payments on your loan are tax-deductible.
Tip: Interest rates vary in a big way between lenders. A loan comparison is worth the time.
- When in doubt, ask. A lot of your money is at stake.
Tip: If you aren’t sure about what an auto lease will really cost you, feel free to mail us the offer at firstname.lastname@example.org and we’ll be glad to help you sort out the fine print.