Be careful when comparing different leasing possibilities
A comparison of the different leasing solutions is essential when planning financing.
Find out about important points which you should take into account before comparing various possibilities. By carefully comparing different leasing offers and acquiring in-depth knowledge about the contract models, you can save money – e.g. – according to a concealed impulse research – up to one third for a company car.
Learn more about the principles of leasing as well as tips and tricks about leasing models and contracts. If you have a specific inquiry, we will gladly advise you and help you with the right leasing solution for your needs.
Information for private persons
What do you have to look out for as a private person?
As a private person, you should know the principles of leasing in order to benefit from a liquidity-friendly model. Leasing is not only beneficial for business customers, but also an attractive alternative for private customers.
When leasing a vehicle the following steps should be taken into account:
Step 1 – Understand the leasing model
Leasing is a kind of lending business where you are the tenant. The leased object (e.g. a computer) remains the property of the leasing company. Therefore, you do not gain an equivalent value to the amount you pay for the down payment and the installments – leasing is therefore not a classic financing model. You pay monthly rates over the duration of the previously defined contract term. The amount of the installments is influenced by the down payment you have to make at the start of the contract – the higher the down payment, the lower the monthly rental rates. The amount of the installments is fixed; you therefore do not have to expect an unforeseen increase in cost. The residual value, i.e. the calculated value of the car at the end of the contract period, also has an effect on the amount of the installments. If estimated inappropriately low, it has a negative effect on the monthly rental rate. Please note that you have to return the leasing object at the end of the contract – merely with wear and tear according to the T&Cs. For example a computer should only be returned with minor scratches and bumps. If the leasing company offers service packages, e.g. theft insurance, you should always compare it with your own insurance.
Step 2 – Decide on the right contract model
The most important thing about leasing is the choice of the right form of contract. For instance, in case of an automobile, kilometer leasing is predominantly used as residuals are often calculated incorrectly in residual value leasing. Learn more about the 3 most important models as well as what you should look out for:
Residual Value Leasing
In the case of residual value leasing, the leasing company and the customer – a private individual or a company – determine a residual value for the car in the contract. The residual value is the price for which the leasing company wants to sell the car at the end of contract.
If the residual value cannot be achieved for whatever reasons, the customer must pay the difference. Therefore, the calculated residual value should not be too high – it lowers the rental rates, but increases the risk that you will have to pay more at the end of contract.
Make sure that the dealer calculates the residual value of the vehicle based on a transparent, market-conform value. The calculated residual value owed to the lessor should therefore always be agreed based on the dealer’s purchase price instead of the dealer’s selling price (which is approx. 10 to 15% above the purchase price).
In the case of kilometer leasing, the leasing company and the customer contractually determine how many kilometers are expected to be driven with the car. If there were fewer kilometers driven, the customer gets money back. If the customer has driven more kilometers a certain sum will have to be paid. However, leasing companies are often accommodating and offer their customers sometimes a tolerance of 2,000 to 2,500 km.
It is therefore advisable to compare different offers based on the same rental period and same mileage. Check carefully how much mileage is covered by the rental rate and how much you will be charged for exceeding kilometers. If you are likely to exceed the agreed mileage, you should have an alternative offer calculated on the basis of the actual expected mileage. And finally, make sure that an agreement is included in the contract considering a payment if you fall below the expected mileage.
As far as enquiries for automobiles are concerned, please make sure that you request an anonymous offer without your name. Car dealerships frequently have customer protection, which means that you cannot get an alternative offer from another dealer of the same brand.
Contract with the right to buy at lease end
This form of contract is another version of the residual value agreement; however, the lessee has no right to buy at lease end. Instead, the lessor decides whether the lessee can buy the vehicle or not. A lease agreement with the right to buy at lease end states a pre-defined residual value in the contract.
At the end of the lease, the lessor may require the lessee to buy the vehicle if its value is less than the calculated residual value. If, on the other hand, the vehicle’s value is above the calculated residual value, the lessee is usually not able to buy the vehicle, i.e. he has no right of purchase. Based on these reasons it is not advisable to conclude agreements with a right to purchase.
Step 3 – Avoid potential leasing pitfalls and contractual risks
In order to minimise the risk when leasing, please consider the following advice on leasing and contract design:
- Study and compare all contracts carefully at home
- Short rental periods and special termination clauses are advisable
- Treat residual value contracts with caution, as leasing banks often calculate the residual value unrealistically high
- If you conclude an insurance policy to cover payment difficulties, you may protect yourself against illness or unemployment. However, the rental rates will increase.
- At the start of the contract, customers of leasing companies must either take out motor vehicle liability insurance or a comprehensive insurance by themselves or through the leasing company. In case of theft or total damage, full comprehensive insurance is often not sufficient; therefore make sure that the insurance package contains GAP insurance.
- Small dents, scuffs or paintwork damages are normal traces of wear and tear which the customer does not have to pay for. If the leasing company and the customer cannot agree on defects, damages or a reduction in value, an expert has to be consulted. The costs for the expert are divided between the leasing company and the customer.
- Vehicle repair costs have to be covered by the customer if a net leasing contract has been signed.
- Theft of leased cars is usually covered by comprehensive insurance, which however mostly only covers the replacement value of the car. It might be worth to take out an extra insurance against theft.
Please pay attention to informing the leasing company immediately in the case of theft (otherwise customers might have to bear the costs themselves).
For more information and to clarify important, topic related terms, you might want to browse our glossary.
Information for entrepreneurs, freelancers, self-employed persons
Which leasing model interests you?
If you are not sure or still comparing different offers, please contact us at an early stage. We will be pleased to advise you in a specific and need-oriented manner and determine the best solution for you by comparing the various models.
What do you want to lease?
- IT-Equipment, computer systems
- Vehicles (automobiles and commercial vehicles)
- Medical technology