As of: March 25, 2024, 5:42 p.m
By: Salim Rehan
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Be careful when buying a car: financing or leasing?
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You can lease or finance a car.
That sounds similar at first - but there are a few key differences.
If you need a new car and can't buy it with cash, you usually have two options: you can lease the car or finance it.
But what is actually the difference?
This is how leasing works
When you lease a car, you can use it, but you don't own it.
Because you are not the owner, but only the keeper of the vehicle.
This means: You sign a leasing contract for a certain period of time, for example two years, and pay a fixed rate every month.
You'll also need to pay for things like insurance and MOTs.
Kilometer leasing or residual value leasing?
There are two types of leasing: With mileage leasing, you specify in the contract how many kilometers you want to drive per year.
The leasing rate depends on this.
If you drive more, it will end up being more expensive.
If there are fewer kilometers, you get your money back.
With residual value leasing, the rate is cheaper, but you usually have to pay more when you return it.
Your rates depend on the difference between the new price and the residual value.
If the residual value is lower than agreed at the end, you pay more.
With mileage leasing, the costs are easier to keep track of, which is why it is usually the better choice.
With both variants, you end up paying for every flaw.
With mileage leasing, it doesn't matter to you how much your car - for example your diesel or a used electric car - is worth in the end.
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This is how financing works
With financing, you buy the car with a loan and it is yours (but with some loans only when it is paid off).
This works, for example, with a car loan.
You pay it back in installments over a set period of time, for example €400 per month over three years.
In order to find the cheapest interest rate for yourself, you should compare car loans via different portals.
We recommend Verivox,*, Finanzcheck*, Smava* and Check24*.
There are other options: With balloon financing, the rate is lower, but in the end a high final installment is due.
Three-way financing is more complicated, but the rate is usually lower than with a normal loan.
You initially pay a fixed monthly rate.
At the end of the term you then have three options:
You buy the car with your own money with a final installment.
You can finance the final installment, for example with an installment loan.
You return the car as if you were leasing.
What suits you?
With financing, the car will be yours at some point.
You don't have to worry about small scratches and you don't lose the residual value.
The contracts are long and the installments are often more expensive.
Leasing costs less per month and you always have a new car.
To do this, you have to take good care of the car so that you don't end up paying extra.
And when the contract expires, you have to lease a new car and have to pay again for new installments.
Leasing or financing both have advantages and disadvantages.
The “Car Financing” financial tip guide will help you make your decision.
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This article is available to IPPEN.MEDIA as part of a cooperation with the non-profit money guide Finanztip - the original for this article “Leasing or financing a car: You should know this difference
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comes from the weekly Finanztip newsletter from March 22, 2024.
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