Private leasing or car loan?

Whether it’s to take advantage of a great deal at the Autofestival or at another time of the year, many of us will turn to a car loan when buying a new vehicle. This remains true, even if the conditions are not as attractive as they used to be since interest rates soared. Did you know that there is an alternative, called private leasing. What does it entail? What are the advantages and disadvantages? myLIFE tells you all you need to know.

Until recently, the only real options available to Luxembourgers buying a car were to pay in cash, reach an agreement with the dealer or go to their bank for a car loan repayable over several years. Recently, however, the major banks have joined forces with vehicle leasing specialists to offer a new solution for individuals in the form of private leasing.

Financial leases and operating leases have been around for a while in the corporate world, but they are less accessible for individuals. They have certain features and constraints that must be well understood before you drop your classic car loan for private leasing.

What is private leasing?

No contract is the same, but there are some common threads between the various private leasing deals available on the market, starting with the fact that they are always operating leases, not hire-purchase plans. They are also aimed exclusively at Luxembourg residents.

A private lease is all-inclusive. For a monthly fee, you get to drive your car over a given period of time and within a maximum mileage. This includes the cost of the car itself, as well as that of delivery, insurance, road assistance and maintenance. You get to choose the term of the lease from among the options available (usually between 24 and 60 months based on the offers we compared).

Your monthly payment is determined by the usual financial depreciation on the car, i.e. the difference between the purchase value and the value at which the leasing company will be able to resell it at the end of the contract. It also depends on other factors such as the term of the contract, the mileage limit, the level of insurance and assistance, the maintenance costs, and of course the estimated resale value.

The first thing you should have noticed is that you are simply renting the car; you do not own it. And you never will!

From this brief introduction alone, the first thing you should have noticed is that you are simply renting the car; you do not own it. And you never will! There is no option to purchase the car once the lease is up.

The second thing to consider is what exactly is meant by “all-inclusive”. These leases include:

• delivery and registration of your new car
• use of the car within the maximum annual mileage limit
• maintenance, i.e. servicing, changing and storing tyres, technical inspections, certain repairs, and part replacements
• insurance (offering a very high level of protection) and the annual road tax
• assistance services in Luxembourg and abroad.

Depending on your contract and the service provider used by your bank, you could also qualify for additional services such as:

• a loss damage waiver covering any damage by the lessee (outside of a claim)
• the ability to have the car picked up from your home for maintenance and repairs
• a replacement vehicle provided free of charge if your car is out of commission for an extended period of time
• the option to take out and manage your lease contract entirely online.
• …

Everything is taken care of and it’s highly convenient, but don’t forget that these advantages come at a cost.

Advantages

• There’s no need to put down a deposit, thus requiring no capital investment on your part.
• You enjoy the convenience of an all-inclusive service in exchange for a monthly payment.
• You get to enjoy driving a new, more luxurious car.
• You can switch to the latest model whenever your lease is up.

At first glance, it seems as if private leasing is all upsides – everything is taken care of and it’s highly convenient. It won’t cause you to dip into your savings, and you get to drive a new car that would be difficult to afford outright. All this is true, but don’t forget that these advantages come at a cost. . In addition, there are a few points to consider before opting for a private leasing.

Disadvantages

• You don’t own the car and won’t have the option of purchasing it at the end of the lease.
• The duration and permitted mileage are defined in the lease contract. They can generally be renegotiated during the course of the lease, but this will lead to higher monthly payments.
• Any use above the permitted mileage will incur costs.
• You will be charged fees if you terminate the contract early.
• It’s your responsibility to keep the car in good shape. You will bear the cost of repairing any damages to the car (scratches, dents, etc.) at the end of the lease. This point should be self-evident.

So, private leasing or car loan?

The answer to this question depends on you and your relationship to your car. Are you fine with renting, or do you prefer to own? Do you value convenience over freedom?

Taking out a loan to finance a new car doesn’t offer the same services as private leasing, but it does mean the car is yours and allows you to:

• use it as you see fit, as much and for as long as you like
• sell it whenever you like
• keep the proceeds from the sale.

In addition, the car loan itself is attractive in that:

• you will generally have more options as to the term of the contract
• it guarantees fixed monthly payments for the duration of the loan
• the loan interest is tax-deductible.

In the end, it’s up to you to choose the right method for you. Good luck and drive safely!