Please note in advance that there is no clear answer to this question. However, before you dismiss this page in disappointment, be aware that you will have more clarity in your choice after reading this article. For each type of person is suitable different type of financing, which will be tailored to their needs.
The most important concepts
While the loan consists of borrowing money for which a person can buy the item and own it, leasing has different rules. With leasing, the car is owned by the seller until the buyer pays all the installments. Leasing is actually based on a lease agreement – the buyer rents the car for the period of payment.
There are two types of leasing – financial and operational.
- For financial leasing it is assumed that you buy the car at the end of the repayment period. Financial leasing is characterized by a higher first installment, the so-called down payment, which usually amounts to 30% of the vehicle price.
- Operational leasing, on the other hand, is much more charter than financial leasing. Operating leases are not expected to be purchased at the end of the period, but there is an option. Under operating leases, there is no obligation to pay a down payment.
While in the past the driver could choose between different lengths of leasing (for example, for one year, ie he could have a new car each year), today the most common length of leasing is 3 years. Can’t you decide whether leasing or credit is more convenient for you? Let us now focus on the pros and cons of each form of financing.
Although leasing remains in people’s subconscious as the most expensive option, it is not always the case. It is true that in the case of leasing there is often a higher fee for arranging a loan. However, liability insurance and accident insurance are already included in the lease installment. In today’s wide range of financial products, the prices between credit and leasing are not very significant.
Rather, the choice of a suitable financial company plays a role in the question of financial profitability – the differences between the offers of credit and leasing companies can be very significant. For a loan, always find out information about APR, which is literally “annual percentage rate of charge”, ie the amount of loan costs, which includes interest and other costs – such as account maintenance fee.
How much can individual loans vary?
We compared the loan conditions of three random credit firms on the Czech market. Loan of USD 300,000, repayment period of 5 years:
|APR||Total amount paid|
|Company 1||4%||330 686 USD|
|Company 2||6.07%||347 173 USD|
|Company 3||11.67%||392 154 USD|
The table shows that by choosing the cheapest option you can save 61 468 USD. Where to get more comprehensive information about the credit market?
Tip! Our online loan calculator allows you to compare offers across the market and find the cheapest option, allowing you to save tens of thousands of crowns. Find the best loan
Difficulty of obtaining
Loan is more difficult to obtain, while leasing does not have such strict rules. In most cases, leasing is therefore a faster and easier option for financing. This can also be an advantage of traps at the same time. While it is true that they will not check your solvency so closely with a lease, but a thorough click through of your financial capacity can help. In general, lenders do not lend to people who are unable to repay. Therefore, when applying for a loan, you have a better chance that the loan will match your payment options.
The question of ownership
The loan has one indisputable advantage, which is the fact that the car is owned by you. If you are unable to make a payment, the bank or credit company will be interested in agreeing with you and setting up a repayment schedule, for example. This is quite the opposite of leasing, where the leasing company can terminate your contract if you miss the installment and confiscate the car.
Worries about normal operation
While for ordinary property you have to worry about a lot of things (paying insurance, service repairs), for leasing these activities are covered by a leasing company. The installment price includes both compulsory and accident insurance. The leasing company also covers most service repairs.
While you can drive a half of Europe with your own car, most leasing companies set a mileage ceiling. Usually it is 20 000 kilometers per year. After exceeding this limit, you will not be taken away by your car, but you may increase your leasing payment, or you may pay extra for each kilometer beyond the scope of a single ramp. Leasing companies can charge for example USD 1 – 2 per kilometer, but there are also companies where they pay a fixed amount or even 6 USD for each extra kilometer.
Currently from the market
How are the trends when buying a car now?
- Interest in operational leasing is growing – approximately 30% of buyers choose this form of financing.
- People are interested in more expensive used cars. More and more clients prefer more comfort and luxury in a car, and many of them do not hesitate to buy more luxury cars in used car shops.
- Households are more likely to opt for consumer credit, while operating leases. Operational leasing is an affordable way for companies to buy cars and not to spend money on their purchase.
- Part of the purchase of a car is the conclusion of appropriate insurance. In 2019, people will spend USD 5607 for MTPL (June 2019). The difference between the cheapest and the most expensive MTPL offer in the same month was 3391 USD.