Which financing form is the right choice for my car?

 

Buying a car can be expensive, especially if it is a new car. In cases like this, car leasing or car financing could come in handy. In this article we will present the different financing and leasing options to you and give information on what you should pay attention to.

 

 

 

 

Lease Purchase

 

If you opt for Lease Purchase (LP), in Austria this is generally referred to as “Leasing”, the car is the leasing company’s legal property. You will receive a declaration, which states that you may drive the car for the duration of the lease. If you make a balloon payment to buy the car at the end of your lease contract, it becomes your property.

 

Compared to loans, LP often offers better interest rates. But you won’t be entitled to a rebate if you pay the full amount back before the end of the original term. You will not save any money because the interest needs to be paid until the end of the agreed leasing period.

 

If you plan to make use of the whole length of your contract and buy the car with a balloon payment at the end of it, car leasing will probably be the more economical choice. In this case you also won’t need to stay within a set mileage restriction during the contract period.

 

 

For used cars it is important to check whether the car still is eligible for leasing. If this is not the case, Hire Purchase finance (HP, dt. Ratenkaufvereinbarung) can serve as an alternative.

 

 

Car Finance or Credit

 

You can choose to take out a loan from a bank to buy the car, which makes the car your property. In most cases, however, the interest rates for this option are higher than they would be for LP.

 

The advantage of a car credit is that if you pay off the loan earlier, you don’t need to pay interest until the end of the originally agreed loan term since it is calculated to the day.

 

 

Operating Leasing

 

Operating Leasing, as it is called in Austria, is generally referred to as “Leasing” in the English-speaking word. Operating Leasing is considerably more expensive than LP, but can still be quite appealing to car enthusiasts. When choosing this option, you can drive the car for a set term while paying a monthly fee. Once the lease contract is up, you can return the car and take out a lease for a new one.

 

This option can be seen as paying rent for a car that you use for a set period, before exchanging it for a new one.

 

 

About the Car Dealers…

 

Car dealers will often offer you a discount on the car if you also take out the lease and the car insurance with them. Offers like these always entail conditions like

 

• Insurance and lease are not to be cancelled for several years or you’ll need to pay back the discount you got.
• The excess in your comprehensive insurance is higher, except if you go the car dealer’s garage for repairs.

 

The price of buying a car, financing a car and insuring a car can be calculated in different ways, however. At car dealerships, it is often not clearly evident how much of your monthly instalment is part of the lease or the insurance. Often, only the total fee is shown. 

 

Another common misconception is that the car is cheaper because the monthly instalments are low. How cheap or expensive a lease is, however, always depends on the total costs. The more expensive the balloon payment at the end, the cheaper the monthly instalments.

 

In most cases, taking out a lease and insurance with the car dealership will end up costing more than the discount offered on the car. Because of this, you should consider the purchase, financing and insurance of your car as three separate affairs. Often, it pays off to pay more for the car as alternative insurance and financing deals will have you save a great amount of money over the course of three to five years.