You always want to drive the latest model without buying it for a lot of money? You can have that! The solution is called car leasing. For a long time, this rental method was mainly of interest to companies. Today, however, it is no longer unusual to lease a car privately. There are two main options: car leasing with a mileage contract and a residual value contract. But both have their pitfalls.
Car leasing – the “rental car” model
Leasing a car – that means nothing else than renting it. So instead of financing or buying a vehicle and then owning it, you acquire the right to use it. In other words, you can drive it without owning it. And for an agreed period – usually between twelve months and four years. The provider is, for example, the vehicle manufacturer’s car bank or an independent leasing company. As long as the contract is running, the “lessor” collects fixed monthly instalments. Afterwards he gets the car back from the user.
The principle seems familiar to you? No wonder, after all, renting an apartment is also a form of leasing. However, the comparison is a bit misleading. Vehicle leasing has its own laws. This becomes apparent right from the start. Depending on the provider, you as the lessee have two options: one with a mileage contract and one with a residual value contract.
Although there is also zero leasing and full-service leasing, these variants are particularly useful for companies. This means that if you want to conclude a car leasing agreement privately, you will normally only have to deal with the following two forms.
Car leasing with kilometre contract
The name already gives it away: Here, the kilometres driven during the service life play the central role. How much and how far you want to travel by car is agreed with your lessor at the beginning. The amount of your installments will then be based on this: drive a lot, pay more each month.
When you return the car after the agreed term, the mileage is checked. If the car has covered up to 2,500 kilometres more or less than agreed, as a rule everything remains as agreed. If you have been on the road even more, you will have to add money. If you have driven even fewer kilometres, you will get something back. How much is stated in the leasing contract. Make sure that what you get back when you save on mileage should be exactly the same as what you would otherwise have to pay extra.
Mileage leasing is easy to plan because of the clear specifications. At least if you actually stay within the agreed framework. But sometimes things turn out differently than you think. If it becomes apparent that you have underestimated the mileage and will have to pay more in the end, you should drive less.
So leave the car more often. Maybe you can use another car, for example that of your partner or a friend? Or are tickets for public transport the lesser evil compared to the “contractual penalty”? Under certain circumstances, a rental car can also be cheaper than the impending additional costs.
Car leasing with residual value contract
How much is the leased vehicle still worth at the end of the contract period? This is the all-decisive question if you decide to go for this option. The reason: your lessor wants to sell the car afterwards. This is then of course worth less than a new car. But how much is there left for it? You and your leasing partner determine this as the so-called “residual value” at the beginning. Of course, this is not so easy because no one knows what condition the car will be in later. But one thing is clear: the higher the agreed residual value, the lower the monthly leasing instalments.
But: The final settlement is made at the end! Then an appraiser checks the car and tells you what it is still worth on the used car market. If the price is within the agreed residual value, everything is fine. If it is higher, you will even get your money back. But if it is below that, it can be expensive for you. What’s missing, you will have to pay for out of your own pocket.
And experienced drivers know how quickly you can catch a dent in the sheet metal. If you’re not careful, bump into something – the car is worth a few hundred euros less. It doesn’t even have to be your fault. All you need is someone to crash into your car from behind. Or general conditions can change unexpectedly. Take the diesel affair, for example: It had hardly become known when used diesel engines became slow sellers. Not even at rock-bottom prices did they leave. With car leasing with a residual value contract, there is always a high risk that you will have to pay something extra at the end of the contract.
Lease a car and still keep it?
Yes, that is possible. This is possible if you have initially agreed to a contract with a right of tender. The basis for this is usually the leasing variant with residual value. In this case, put option means that your lessor can offer you the car for sale at the end of the term for the agreed residual value.
If he does so, you have to buy the vehicle. Even if the vehicle is worth less than expected. If, on the other hand, it is worth more, the lessor will generally not use his put option. After all, he can then offer the used car on the open market at more than the assumed residual value. As a lessee, therefore, you often do not do so well with a tender right contract.
Advantages and disadvantages of private car leasing
There are two sides to everything. That also applies to car leasing. For many users it is certainly a plus point: depending on the term, they can switch to new vehicle models at relatively short intervals. There are leasing contracts that end after just twelve months. However, this flexibility is reflected in higher monthly instalments. Unfortunately, there are often such pros and cons with car leasing.
That speaks for car leasing
- With a longer term (usually up to four years) relatively low leasing rates
- Reliable planning due to fixed rates
- Large equity capital at the start of the contract is not absolutely necessary
- But you can lower the monthly installments by paying a larger sum at the beginning
- Access to current cars
- Easy change of model with follow-up leasing
- Return or purchase upon request (right to tender)
- No effort to resell the vehicle
- Bonus with lower mileage or higher residual value than agreed
That speaks against car leasing
- With a short term (usual minimum one year) relatively high leasing rates
- Vehicle must be returned (unless the right to tender has been agreed)
- Additional payment for longer mileage or smaller residual value than agreed
- Particularly high cost risk for leasing with a residual value contract
- As a rule, the contract cannot be terminated
Buy, finance or lease a car?
Simple question – difficult to answer. After all, all three options have certain advantages, but not generally for everyone. Instead, it always depends on individual needs and financial leeway. One thing is clear: if you want to own a car, the cheapest way to drive is to pay the price immediately and in full. In this case, dealers often grant high discounts. Disadvantage: The money is gone in one fell swoop.
The alternative car loan is ultimately more expensive than the purchase. But because of the monthly installments, the financial burden is spread over a longer period of time and can be cushioned well. At least with the right discipline when saving money. Also good: You can claim the instalments against tax. Once they are paid off, the car is yours.
And car leasing? Because the vehicle is only used but not bought, the instalments are often cheaper than with a car loan. However, they are not tax deductible for private individuals. This only applies to interest (companies and the self-employed, on the other hand, can list the costs as business expenses, so a leased car is more advantageous for business people). And there remains the financial risk at the end of the term of a kilometre contract or residual value contract.
If you want to lease a car privately, you should think twice. After all, the money you put into the instalments is gone. At the end of the term you will be left without a vehicle of your own. And in order to act in accordance with the contract, you need a good sense of proportion. In return, car leasing makes it easy for you to switch from one new car to another. All you need to do is sign a follow-up contract. And what happens to the old car afterwards (deregistration? sale?) is of no concern to you. It’s different with your own car, which you have bought or financed.