Leasing

Leasing is a "transfer of use". A contract is concluded between:

  1. User

  2. Finance company

  3. Seller (usually the car dealer or garage).

The "leasing contract" (or "transfer of use contract") is then a special type of rental contract. The user receives the right to use a capital good (most commonly known as a car) and pays a monthly instalment to the finance company. The capital good (e.g. the car) becomes the property of the user, but the finance company remains the owner for the entire duration of the leasing contract.

Let's stay with the example of "car leasing": The leasing rate (rent) is calculated from the purchase price of the car, the contractually agreed period of use, the intensity of use (kilometres driven during the period of use) and the remaining residual value of the vehicle after expiry of the period of use. The seller agrees to buy the car from the finance company at the residual value after the useful life has expired.

However, it is important to keep a sharp eye when comparing financing options. Leasing is often a favourable option at first glance, but a car loan is often more cost-effective. In addition, there are other differences that are taken into account with leasing and are omitted with a car loan:

  • Early termination of a leasing contract is very difficult and often very expensive.

  • If the car is used more than contractually agreed, the car user will incur additional costs after the contract expires.

  • Costs for car insurance are often very high, as finance companies demand the highest insurance coverage.

  • Costs for a private car lease cannot be claimed against tax

Further information on the subject of "Car leasing vs. car credit"