Leasing or loan – which option is better for you?

For many private households, paying cash is often not an option, especially for larger purchases such as a new car. When choosing the right financing, the question often arises: leasing or credit?

Both methods offer certain advantages and disadvantages. The best choice therefore almost always depends on individual needs and financial circumstances. This article explains the differences between leasing and credit to help you decide which option is better for you.

Leasing or loan: How to finance your new car

Leasing or credit: definition

Before we delve deeper into the topic, we should first briefly explain the two terms.

What is leasing?

Leasing is basically a long-term form of renting and is often used for car financing. You pay monthly installments to use a vehicle or other asset without owning it. At the end of the leasing period, you usually have the option of buying the asset at a predetermined residual value or returning it and signing a new leasing contract.

What is a loan?

A loan is a contractual agreement in which a borrower receives a sum of money or something else of value. In return, the borrower undertakes to repay this amount to the lender in installments or in full at a later date. As a rule, borrowing is linked to the payment of interest. Typical types of loans are real estate loans or education loans in Switzerland.

Credit or leasing: advantages and disadvantages

In this section, we briefly discuss the respective advantages and disadvantages of both types of financing when purchasing a new car.

Advantages of leasing

  • Lower monthly installments: As you only pay for the use of the vehicle and not for its full value, the monthly leasing installments are generally lower.
  • Always the latest car: leasing allows you to drive a new model every few years.
  • Lower maintenance costs: As the leasing period is often shorter than the service life of the vehicle, there are fewer maintenance and repair costs.

Disadvantages of leasing

  • No ownership: At the end of the leasing contract, you do not automatically own the leased vehicle.
  • Mileage restrictions: Many leasing contracts have a mileage limit, which incurs additional costs if exceeded.
  • Contract fees: Early contract terminations or changes can be expensive.

Advantages of a loan

  • Ownership: You are the legal owner of the car and can use and sell it as you wish.
  • No mileage limit: Since you own the vehicle, there are no mileage limits.
  • Value of the vehicle: After the loan has been repaid, the car still has a residual value that belongs to you.

Disadvantages of a loan

  • Higher monthly installments: Since you are financing the entire vehicle, the monthly payments are usually higher.
  • Depreciation: The value of the car decreases over time and you bear the entire risk of depreciation.
  • Higher costs for maintenance and repairs: As the owner, you are responsible for all maintenance and repair costs.
LEASING OR CREDIT?

A decision that depends on personal needs and plans

The decision between car leasing and car loans depends on various factors and personal needs. Incidentally, both financing options are registered with the Central Office for Credit Information (ZEK) – however, how long a ZEK entry remains in place depends on the type of information and the respective retention periods.

If you prefer lower monthly installments and don’t want to make a large down payment, leasing may be more suitable for you. The same applies if you attach great importance to driving a new model on a regular basis. On the other hand, if you want to save for the long term and own an asset, a loan is more advantageous.

Credit: often a better option for private individuals

As explained in the previous section, the choice of the right form of financing depends primarily on your circumstances and needs. A personal loan makes more sense, especially if you plan to keep the car for many years. Even if you have to drive many kilometers per year as a commuter, for example, taking out a loan is usually the better solution. Leasing contracts often have mileage restrictions and are therefore less interesting for this user group.

FAQ

In this section, we answer the most frequently asked questions on this topic.

  • Which is better: leasing or financing a car?
    The decision between leasing and buying a car depends on your lifestyle, your driving habits, and, last but not least, your financial situation. Leasing offers lower monthly costs and allows you to change vehicles regularly, while credit financing is financially worthwhile, especially in the long term. After buying a car, you are also the immediate owner of the vehicle and have full control over its use and maintenance.

  • What are the advantages of credit purchasing over leasing?
    First of all, you become the owner of the vehicle when you buy it and can modify it according to your wishes, for example. In addition, there are no mileage restrictions and you can use the car for as long as you like. Once the loan has been paid off, you have an asset that can be sold or used further, with no ongoing monthly costs.

  • Why is leasing cheaper than financing?
    In some cases, leasing can be the cheaper option because you only pay for the use of the vehicle over a certain period of time and not for the entire value of the vehicle. This results in lower monthly installments. In addition, leasing often eliminates the need for high down payments. In addition, regular maintenance costs are often already included in the leasing contract. Leasing also gives you access to newer, more expensive models that might be unaffordable if you were to buy.

  • What are the disadvantages of leasing?
    By leasing a vehicle, you do not acquire ownership of the vehicle – so at the end of the contract, you own nothing. In addition, there are often mileage restrictions, which incur additional costs if exceeded. The desire to terminate the contract early or make changes can also be expensive. The leasing company usually requires the vehicle to be returned in good condition, which can result in additional maintenance costs. You should not be fooled by supposedly low leasing rates.
Miro Kredit Swiss - Conclusion

Conclusion: a comparison of financing options is worthwhile

The first thing to note is that the decision between leasing and credit always depends on your individual needs and financial circumstances. Leasing offers lower monthly installments and flexible terms, but you do not own the vehicle at the end of the contract term.

A loan enables you to acquire property and offers more freedom in the use of the vehicle. However, the monthly installments are usually higher due to the interest on the loan. If you want to own a vehicle for the long term and can afford the interest on the loan over the term, buying on credit is the better option. Leasing is therefore particularly suitable for drivers who regularly have a new car and do not want to make a large investment.

Private loan calculation example:
Private loan calculation example:

Loan amount: CHF 10,000 without insurance. Repayment period: 12 months

Interest (including costs) amounts between CHF 240.50 and CHF 574.25. Effective interest rate 4.5% – 11.95%. Possible loan repayment period from 12 to 120 months

Processing fees: CHF 0.-. Granting a loan is prohibited if it leads to over-indebtedness (§ 3 Unfair Competition Law – UWG)

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