Leasing for individuals and car loans: what are the main differences?

If you are thinking of buying a new car, there are many financing options available to you. For example, you can choose to fully finance your vehicle with your own savings. If you prefer not to use your savings, you can finance the purchase with a car loan or a private lease. The last option is a relatively new concept, but this method of financing has become much more popular with Belgians in recent months. But how does a private leasing work exactly? What are the advantages and disadvantages? And what are the main differences with a car loan?

Private lease

Private lease

The concept applying to a private leasing is identical to that of a business leasing. You receive a car for an agreed period under a lease for which you pay a fixed monthly amount. It’s also one of the biggest differences with the classic car loan. A person who opts for a loan immediately owns the car. By choosing a leasing company, where most private leasing arrangements last for 2 or 4 years, you are actually renting a car owned by the leasing company. The terms of the private rental agreement vary from business to business. In general, in addition to the use of the car, most of these companies also cover for you any additional costs such as: insurance, tax, circulation tax, vehicle maintenance (tires, repairs, etc.), legal assistance, breakdown assistance and even a replacement car when needed.

A private leasing contract can therefore be compared to a long-term lease in which all possible costs are covered. Therefore, if you have some doubts about your decision to buy your car through a private leasing or car loan, it is always useful to compare the price of the monthly rent, with the price of the car and its associated costs.

Private Leasing vs. classic loan

Private Leasing vs. classic loan

Leasing companies sometimes collaborate with chain stores to reach a wider audience for their private leasing formula.

The advantage of the private lease is that you know exactly what you will pay per month. You do not have to worry about extra costs such as maintenance, vandal scuffing or the potential replacement of a car (which is usually necessary if you have a traditional loan).

Note: all possible costs are included in the rental price, with the exception of fuel costs.
In addition, as part of a lease, you do not have to pay a deposit and no residual balance is required. On the other hand, the owner of the car will never get the title deed on the car. The rental company or the car manufacturer remains the real owner. In addition, you do not have to worry about the depreciation of your vehicle. Anyone who buys a car with a car loan sees the value of his car decrease from year to year, a non-existent problem with a rental car because you do not intend to sell it. Another advantage of the private lease is the ecological footprint. Indeed, as you change car more often (duration of 2 or 4 years), you can always apply for a more environmentally friendly vehicle.

Unlike a traditional loan and as mentioned earlier in the article, with a private lease, you will never own the car. Selling your car on the used market after the expiry of the contract is therefore not an option. Neither can you terminate the contract prematurely because it is usually a long-term financial commitment. Anyone wishing to terminate the contract must pay a termination fee to the company in charge of the lease. This allowance is calculated according to the remaining duration of your contract and depends on the size of your car. If you have a car that you finance through a loan or your own savings, you have the freedom to sell it at any time.

Finally, as a leasing user, you must indicate at the beginning of your lease the number of kilometers you drive on an annual basis. This estimate is used as an indication to calculate the monthly rent. If you travel more kilometers on an annual basis, the residual value of the car decreases, which will lead to an increase in the rental price. The mileage of the car is recorded once a year and then compared to the monthly price.

Knowing which option to choose can therefore depend on several factors, which you do not always control, such as maintenance or the number of kilometers (often difficult to predict). It’s a good idea to look at your personal circumstances and preferences, as well as to calculate on a monthly basis which of the two options would be the least expensive for you to get the most out of each. Are you thinking of buying a car yourself and financing it with a car loan? Feel free to use the car loan simulation tool to compare all banks on the Belgian market and choose the formula that best suits your situation.

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