It’s the Autofestival and you’re getting ready to buy a new vehicle? But enthusiasm and finances don’t always go hand in hand. Leasing or credit? Understand the impact on your monthly budget so you can make the right choice.
Vehicle loan
A car loan is a financing solution that allows you to borrow money from a bank or credit institution to buy a vehicle. In this way, you become the owner of your car. You pay all the associated costs: fuel, tyres, maintenance, insurance, and tax. The financial institution lends you the money, but you manage the rest. Once the loan has been repaid, you can sell your car and recoup part of your investment.
Operational lease
Leasing, or long-term hire, works like renting. You agree to make payments over a set period, and, at the end, you return the car, as you would a holiday rental. The leasing company covers some of the additional costs. You must respect a mileage limit and pay a penalty for each additional kilometre. Charges also apply for damage beyond normal wear and tear. At the end of the contract, you return the car, unless you have opted for a lease with an option to buy (LOB).
In short, in one case you have lent money, and in the other you have lent a car.
At first glance, vehicle loans and leases seem similar: monthly payments in exchange for a car. But leasing works differently, especially when it comes to options and obligations at the end of the contract.
| Leasing | Vehicle loan | |
| Type of vehicle | New or recent vehicles. | New or second-hand. |
| Upfront costs | No upfront costs, but a deposit can reduce monthly payments. | You do not have to make a personal contribution. |
| Monthly costs | Monthly payments are generally lower. | Monthly payments are usually higher than lease payments. |
| Maintenance | Maintenance contract often included. | As the owner, you are responsible for all maintenance costs. |
| Normal wear and tear | Additional charges for excessive wear and tear. | Wear and tear has no impact on the credit, but reduces the value of the vehicle. |
| Mileage | Mileage limit, with penalties for exceeding it. | Unlimited mileage. |
| Car customisation | Customising or changing the appearance of the car may breach the leasing agreement and result in additional charges. | You are free to customise your car as you wish. |
| Ownership | You are not the owner, but you have exclusive use during the lease. At the end of the lease, you must return the vehicle unless there is an option to buy, with a residual value to be paid off. | You own the vehicle. You can, of course, resell it at any time or make an early repayment (usually without penalty), or take a break in case of unforeseen expenses. |
| End of the contract | At the end of the lease, you can return, buy or exchange the vehicle. | At the end of your car loan, you own the vehicle, and can keep it, sell it, or exchange it. |
Everyone has different priorities when it comes to cars, usage, and finances. To choose between leasing and car loan, assess your priorities in these areas. Leasing is suitable for motorists who want to change their vehicle regularly, offering optimum ease of use without hassle, but at a cost. A car loan offers freedom of use, resale value, and tax deductible interest on loans.
