Vehicle or motor vehicle financing can be realised using various familiar forms of financing. Today, however, the focus is not only on the cheapest form of financing; personal needs also determine the most suitable form of financing.
Whether leasing, installment credit or balloon financing – each of these vehicle financings shows its specific advantages and disadvantages, which are also often a matter of interpretation. Financing for cars and the like always involves certain risks, but these can be significantly reduced by an intelligent and well thought-out decision.
Leasing means hire purchase
Leasing refers primarily to the use of a leased object. It therefore has more to do with renting than with buying. The real idea behind leasing is to pay a fee for the fixed period of use, which is kept relatively short (2 to 5 years), and then return the leased asset to the dealer. Options such as the purchase of the vehicle or the extension of the leasing contract are possible, but are actually used by the fewest lessees. The majority would like to benefit from young current vehicles for a certain period of time and therefore only pay during the leasing period. A new leasing contract for another vehicle can then be concluded with the manufacturer or dealer who acts as lessor for the vehicle.
Only commercial leasing offers tax advantages for business customers for whom the vehicle is regarded as part of the business assets. Large companies with vehicle fleets in particular benefit from favourable leasing rates which, unlike purchase, do not tie up any capital.
Leasing knows different types of contracts
The monthly leasing instalment remains constant. At the end of the leasing period, the lessee returns the car. Depending on which option was chosen, e.g. kilometre leasing or residual value leasing, the lessee may still incur costs when returning the vehicle if the maximum mileage has been exceeded or if the actual residual value differs from the calculated residual value.
Who is interested in leasing? Vehicle leasing is suitable for anyone who primarily owns a vehicle for use for a certain period of time and does not wish to commit themselves explicitly. You can change vehicles practically at will and do not tie up any capital.
Installment credit enables early acquisition of property
In contrast to leasing, the installment credit is chosen if the purchase and thus also the ownership of the vehicle are in the foreground. The installment loan can be defined as a car loan for a specific purpose or as a consumer loan without a specific purpose.
Planning security through fixed maturities, an unchanged interest rate over the entire term and constant monthly installments make the installment credit so popular for car financing. The monthly instalment amount decreases the longer the instalment credit runs, but then the total cost of the loan also rises. A down payment is usually not required for the installment credit, but it can significantly reduce the installment amount and the term and thus the total costs.
Installment in car loans
The installment credit as a car loan is available at every bank and also through the car dealer. However, the decisive factor in this financing model is whether it is dealer financing or whether the loan is applied for completely independently from the house bank, a branch bank, a direct bank or an online bank. Who goes with a disbursed credit from a manufacturer-independent bank to the autohaus, that can negotiate a satten discount on the purchase price, which can offer it under the line even far more saving like a zero per cent financing with the dealer.
Direct banks and on-line banks secure themselves also by attractive conditions a projection opposite autobanks, branch banks and house banks. Low interest rates, free of charge special payments in arbitrary height, rate breaks, no retention of the Kfz Briefes, short notice periods belong for the Internet banks today to the standard. Since the selection of the offers is not exactly small, a comparison is worthwhile itself.
The installment credit has its clear advantages when it comes to stability and predictability, the loan amount is completely repaid at the end of the term, there is no high final installment and the car automatically becomes the property of the borrower.
However, it can also happen that the car suffers a total loss before the repayment expires and thus no longer has any economic value. Especially with very long credit periods this is tragic, because you still pay long for a vehicle that can neither be used nor sold. This risk, however, generally always resonates and those who keep the terms as short as possible can also profit from the total costs.
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