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Car Loan or Leasing in Switzerland: make the right choice
Car Loan or Leasing in Switzerland: make the right choice
When it comes to financing the purchase of a car in Switzerland, two main alternatives are possible: opt for a car loan or take out a lease. This decision, far from being trivial, has concrete implications for personal finances.
Car credit is a loan intended for finance the purchase of a vehicle and is subject to the Consumer Credit Act (LCC).
The buyer borrows a sum of money that he repays over a contractual period (with interest).
Auto credit allows immediate ownership of the vehicle to the borrower, regardless of the repayment of the loan. The vehicle belongs to the borrower without any restrictions.
Advantages of a car loan
Car credit is a financing option that offers several significant advantages for the buyer:
Ownership and free disposal of the vehicle: as soon as your credit is activated and the payment is made to the garage, the vehicle belongs to you. This immediate ownership is a major advantage for those who want to have total control over their car.
Flexibility : Car loans offer great flexibility in terms of insurance and choice of garage. Unlike leasing, you are not restricted by vehicle maintenance requirements.
Possibility of reselling the vehicle: You can sell your vehicle whenever you like and pay off the loan early without incurring any additional costs. This reduces the total cost of financing.
Tax benefits : In Switzerland, interest on consumer loans, such as car loans, is fully tax deductible, offering an additional advantage.
Private credit is an effective way to get a car
Disadvantages of car loans
Car loans offer undeniable advantages. It also has some disadvantages that should be taken into account:
A greater financial commitment : Car loans represent a higher monthly financial burden than leasing. The purchaser of the vehicle has to finance and pay the seller the full value of the vehicle, often with higher interest rates. It represents a greater budget constraint.
Credit sometimes harder to access: for tight budgets and certain administrative profiles (e.g. B driving licence less than 6 months old), access to credit is complicated or impossible. In these cases, it makes sense to turn to leasing.
Good to know! The interests on a private loan can be tax-deducted. In addition, there is the possibility of repaying it in advance simply and at no cost, which can reduce the total cost.
Leasing : pros and cons
Leasing is a financing method comparable to renting. You pay to use the car for a set period of time, usually two to four years.
Leasing involves monthly payments, which cover the use of the vehicle and interest on financing. At the end of the contract and depending on its specificities, you have the option of returning the vehicle, extending the contract, or buying the vehicle by paying the residual value amount.
Benefits of Leasing
Car leasing is another form of financing that offers its own advantages:
Lower initial costs : Generally speaking, leasing requires a much smaller downpayment than buying a car on credit. All that is required is an initial down payment, defined in the contract and which can be adapted. This is added to the first monthly payment. This makes it easier to buy a vehicle on a limited budget.
More affordable monthly payments : The monthly payments for a lease are often lower than those for a car loan, allowing you to use a vehicle without paying the full price, because of the residual value.
Access to recent models: Leasing allows you to change cars more regularly, giving you the opportunity to drive more recent models.
Strict solvency requirements : Obtaining car credit is not always easy. Financial institutions assess various aspects of your financial situation before granting a private loan. In addition, your repayment capacity is assessed in the light of your other financial commitments, such as rent, tax and other outstanding loans.
A more complex transfer of the vehicle : Buying a vehicle with a car loan means becoming its owner, as we have seen. It is also up to the owner to find a solution for taking back the vehicle if he or she wishes to dispose of it by selling it to a garage or private party. The conditions of this resale are uncertain and influenced by the second-hand market.
Do you think that leasing is the most advantageous solution for you?
Disadvantages of leasing
Despite its advantages, leasing also has limitations and constraints:
Mileage restrictions : Leasing contracts include an annual mileage limit that corresponds to the expected use of the vehicle. If this contractual limit is exceeded, additional charges per extra kilometre are stipulated in the contract. The amount of these kilometre charges is often prohibitive.
High insurance costs: When you take out a leasing contract in Switzerland, you are required to take out comprehensive insurance to cover all damage. Not only is this very good cover the most expensive, but premiums are also higher when you lease. What's more, this level of cover is compulsory for the entire term of the lease, regardless of the value of the vehicle. This requirement significantly increases the total cost of financing.
Penalties for abnormal wear and tear : Leasing contracts often stipulate strict conditions regarding the condition of the vehicle. If abnormal wear and tear is noted at the end of the contract, penalties may be imposed, leading to additional costs for the lessee in the form of penalties or repairs.
Strict vehicle maintenance requirements : Leasing contracts impose strict guidelines for vehicle maintenance, including frequency, the type of services required and the authorised garages. Failure to comply with these requirements may result in additional charges or penalties, increasing the overall cost of the lease.
A contractual commitment that is difficult to get out of: With leasing, you commit yourself to a fixed contractual term and do not own the vehicle. There are substantial penalties if you wish to terminate the leasing contract early and return the vehicle. This also makes it impossible to resell the vehicle because of the 178 endorsement on the vehicle registration document.
Get help from Credial to finance your vehicle
Cost comparison by type of financing
Comparing the costs associated with car loans and leasing is important to understand which option to choose based on the vehicle's intended use.
If it is difficult to give precise figures, it is recommended to establish a budget by estimating the costs to be considered for each type of financing and the monthly burden before making a decision.
Car Credit
Fees to consider: The costs of acquiring a vehicle with a car loan include the purchase price of the vehicle, interest on financing, the cost of maintaining the vehicle, repairs, insurance and annual taxes.
Of the amount of these accumulated expenses, the expected resale price of the vehicle and the tax deductions for interest should be considered to calculate the total cost. It is possible to estimate the resale price on used sites or Eurotax.
How to limit the financial impact: lNegotiating the purchase price of the vehicle seems obvious, but is too often ignored.
Call on your broker to get the best financing conditions. Evaluate more economical maintenance alternatives, compare insurances, and reassess the level of coverage every year.
Finally, prefer reselling your vehicle to selling it to a garage, because even if this option is restrictive, significant gains of sometimes several thousand francs are the result.
Leasing
Fees to consider: The initial costs of taking out a lease are generally lower.
The leasing contract provides for an initial monthly payment plus the initial contribution and then the payment of a fixed monthly payment for a fixed period of time.
In addition to these monthly payments, there are mandatory maintenance costs, comprehensive casco insurance throughout the term, and annual taxes.
Additional costs are possible and must be anticipated when returning the vehicle, such as abnormal wear and tear, excess kilometers, or penalties in case of interruption of the contract before its end.
How to limit the financial impact: Negotiate your vehicle and avoid unnecessary options. Car salesmen tend to suggest that you upgrade by comparing monthly payments.
Limit the amount of the initial contribution, because there is no point in paying too much. Negotiating the interest rate for a lease is also systematically recommended as for credit.
Do not lease for a period longer than the vehicle warranty to avoid out-of-warranty maintenance costs.
Evaluate annual mileage correctly and don't underestimate it.
Factors to consider for your choice
Your choice between a car loan and a lease must be guided by several factors:
Personal financial situation: Your ability to take on higher monthly payments or your preference for lower upfront costs.
Mobility needs: If you like to change cars on a regular basis, leasing may be a better option.
Long-term perspectives: If you want to have a car without constraints, with the possibility of reselling it whenever you want, a car loan may be more advantageous.
Credial supports you in your decision
The choice between a car loan and a lease depends on your personal needs, your financial situation, and your mobility preferences. If you have doubts about which solution to subscribe, we will be able to advise you. Use Credial to find the financing you need.
