Driving a car under a private lease is becoming increasingly popular. As of 2016 around 65,000 Dutch people were still driving in lease cars, by the end of 2018 that number more than doubled to 150,000. Below we explain what a private lease is and what the advantages and disadvantages are compared to buying a car (with a loan).
What is driving under a private lease?
With a private lease you ‘rent’ a car for a longer period of time. During the term of the lease (around 12 to 60 months) you pay a fixed monthly amount. This amount not only includes the ‘basic’ rent, but also the cost for interest, maintenance and repairs, depreciation, road tax and insurance.
When leasing you know exactly where you stand financially. At the end of the contract time, the car does not become your property (as with a hire purchase), but sometimes you can take it over. Leasing a car is not credit but rent, although you will be registered with the BKR (Credit Registration Office). There are both advantages and disadvantages to leasing:
Private lease benefits
- Clarity: with a private lease you have good insight into the monthly car costs.
- Convenience: you have no worries about unexpected repair costs or maintenance and selling or trading in the car.
- No savings required: do you have a steady income but no savings (yet) and do you still want to drive a new car? Then private lease is a good option.
- Friendly for seniors: People over the age of 70 cannot usually borrow money from lenders, and private leasing is an option. The same age limit applies to only about half of providers of private leasing. The Consumers’ Association can also find older people in the Autolease collective.
Cons private lease
- A breach of the lease contract is expensive. If for whatever reason – dismissal, divorce, illness, a company car, emigration – you have to break the contract, it can have serious financial consequences.
- Private leasing limits taking out a mortgage: do you want to take out a mortgage, but do you drive a car in a private lease? When leasing, you will be registered with the BKR and the bank will test negative registration. The bank also deducts 65% of the lease amount per month from your maximum monthly housing costs. So you can borrow less for a home, sometimes even 30,000 or 50,000 euros. Many leasing companies do not warn about this.
- Costly with little use: for those who drive less than 10,000 km per year, private leasing is actually not interesting. After all, the fixed monthly amount continues, while you use the lease car relatively little. You will not be reimbursed for the kilometers not driven. If, by the way, you are driving more than the agreed number of kilometers, you will have to pay extra. That is why private lease promotions are often offered on short durations with low mileage. But beware: the more kilometers are expensive.
Loss of claim-free years: after 3 years of leasing (read: driving without your own car) you lose all your accumulated damage-free years. Very disadvantageous for premium insurance, especially if you have managed to drive for years without damage. If you want to switch to another insurer, you often have less choice after 3 years of lease due to the shortage of claim-free years.
- Age limits, both upwards and downwards: Approximately half of the leasing company does not grant a lease contract to directors aged 75 and over. There is also a downward restriction: some leasing companies require a minimum age of 21 or 24 years, or charge a surcharge below that age limit.
Buy a car (with a loan)
80% of all cars purchased through a loan are (partially) financed with a Personal Loan. Below we show the disadvantages and benefits of buying with a consumer credit and what you can take into account if you want to borrow money for a (new or second-hand) car.
Cons borrowing money for a car
The biggest disadvantage of a car loan is of course the interest on the loan amount. You pay this on top of the amount borrowed or to be financed, during the entire term of the car loan. With leasing you also pay interest, but this is settled in the monthly amount and therefore less ‘visible’ and hurts less psychologically. On the other hand: saving for a car that you now need is hardly an option with the current 0.25% savings rate.
Just as with leasing, when financing a car you have to take into account unexpected setbacks, such as disability, job loss, divorce or even death. Certainly if you are two, it is wise to think about this carefully beforehand. Additional repayments are always allowed and are free of penalties, but if you can no longer repay the loan, this will have financial consequences. Nobody wants a bailiff at the door or in the debt restructuring.
Benefits auto financing
More than 60% of consumers buy a car through a loan, sometimes for the entire amount, sometimes for a (small) part. That high percentage is not for nothing, because there are also advantages associated with borrowing money compared to private leasing.
- Lower monthly costs: If you buy a car, then you probably have lower costs every month than with a financial lease.
- Trade-in value: If you buy a new car, you usually trade in your old car. This means that you pay less for financing the new car than the full amount for a private lease.
- More scope for negotiation: Are you buying a car through financing from a lender such as From Good Finance? You then have all the freedom to negotiate with the dealer / supplier about the price of the car, extra accessories, higher trade-in price, etc. Check it out: if you know how much you can borrow and arrange this yourself online, you don’t have to make a negotiable loan with the dealer. You avoid an uncomfortable conversation (borrowing money from the dealer is still a taboo) and you can focus on purchasing the car with the best possible deal.
- Freedom as an owner: unlike private leasing, you immediately become the owner when buying a car. You pay the amount yourself to the car dealer / supplier. With a Personal Loan the car is also not pledged, so you decide how you pay off the loan. This can be via the agreed term, extra repayment or even by selling the car.
Calculate your car financing online
Do you want to borrow money for a new car? First check whether a Personal Loan is also suitable for you. Compare loans and interest rates with different banks. With approval you can already have your money within 2 working days.
Then the negotiations can start: you are well prepared to talk to the dealer about the car price and extras. Instead of borrowing money or a private lease. A much stronger starting position to enjoy your new car.