So you have finally settled down and are now thinking about your first card in Germany? After the first step of finding the right model has been taken, the next hurdle arises. Namely, the question of how the new vehicle should actually be financed. find out the options you have.
And there are several alternatives, all of which have their specific advantages and disadvantages. Cash purchase, loan or leasing: which of these three options suits you best depends not only on your financial possibilities, but also on your individual usage habits and your personal approach to property.
Benefit from additional discounts when buying cash
Those who are fortunate enough to have sufficient cash at their disposal to transfer the full amount of the purchase price for the new car directly to the dealer will in many cases be rewarded with an extra discount. For some models, however, the sellers are already offering high discounts. The additional discount due to cash payments is therefore often less than expected. Depending on the amount of the purchase price, however, smaller surcharges can also add up to a not uninteresting sum.
An undeniable advantage of paying in cash is that it transfers unrestricted ownership directly to the buyer. When using or later selling the car, there is no need to coordinate with third parties, such as banks or a leasing company. You alone decide how you use your car and how long you keep it.
Buying a new car is usually not a particularly cheap pleasure. So it can take a long time to save the required amount. But even if the sum is already available, the transfer of the purchase price is automatically accompanied by a significant reduction in liquid funds. This leaves less scope for interesting investment options or any necessary investments. Even if there is currently hardly any interest on savings, a car loan can be cheaper in some cases, as an interest rate close to zero percent is often required for this. If you get more interest on your cash than would be due on a loan, you may get a better deal with financing.
Advantages of cash purchase:
- higher discounts
- Car becomes property immediately
Disadvantages cash purchase:
- high investment reduces financial leeway
- Lending rates can be lower than investment rates
Do you value being the owner of a car yourself and want to have unlimited access to it? If there are still sufficient liquid funds available, the cash payment is particularly suited to your wishes, needs and possibilities.
Get a new car faster with the installment loan
The installment loan is the most frequently chosen option when buying a new car. Financing can take place through your own house bank as well as through the manufacturer’s or retailer’s bank. As a rule, the interest rates of the manufacturer banks are below those that other credit institutions charge for a consumer loan. However, a buyer who receives the required sum from a manufacturer-independent bank can act as a cash payer to the dealer and thus negotiate an additional discount. Before a decision is made, it should first be carefully calculated which alternative will ultimately prove to be the cheaper one.
Advantages of installment credit through a manufacturer-independent bank:
- higher discounts possible if you pay in cash
- Terms and amount of the installments are agreed individually
- Interest rate regardless of make and model
Disadvantages of installment credit through a manufacturer-independent bank:
- The vehicle serves as security for the bank, therefore no full right of disposal
- Unlike with leasing, traders cannot claim installments for tax purposes
Manufacturer banks often offer lower interest rates
The loan offers of the manufacturer banks often not only offer a cheaper interest rate than independent institutes, but also special financing models that are tailored to the corresponding car financing. So-called balloon financing is particularly popular. A large final payment is usually due at the end of the term. The advantage of this model, however, is the very low monthly payments. However, if you want to keep the vehicle after the financing has expired, you may have to take out another loan – often at less favorable terms – in order to be able to meet the final installment.
Advantages of autobank loans:
- very cheap interest rates on certain models
- special financing models for the car market
- Purchase and financing from a single source
Disadvantages of autobank loans:
- Conditions are fixed, there is hardly any choice in loan models
- no additional discounts as cash payers
- Entrepreneurs cannot deduct loan installments for tax purposes
Would you like to remain financially flexible and not invest all of your savings in buying a car? But do you still want to acquire ownership of your vehicle? Then you should take a closer look at the various offers from credit institutions and car banks.
Leasing – not only interesting for tradespeople
Leasing is becoming increasingly popular as an alternative to cash purchases and installment loans. This is a rental contract for a vehicle that you can use under defined conditions for a previously defined period of time. At the end of the term, the car is simply returned to the dealer – without the hassle of negotiating a trade-in or sale. Commercial customers in particular prefer this alternative when purchasing a vehicle, as the monthly leasing installments, in contrast to the expenses for a car loan, can be deducted from tax.
But even private customers who cannot take advantage of this tax advantage are increasingly opting for private leasing. This is not least due to the low monthly payments. Many leasing vehicles also have particularly high-quality equipment. With leasing, there is therefore often “more car for the money” with comparable monthly payments.
However, the lessee is and remains only the renter of the vehicle. Ownership claims are not acquired with the leasing installments. At the end of the agreed term, the car must be returned to the dealer in a contractual condition. The leasing period, like the mileage, can, however, be freely selected. In most cases, the lessee opts for comparatively short terms of 24, 36 or 48 months. The vehicle then goes back and is exchanged for a new model if necessary.
Since there are different leasing models, the conditions should be carefully checked when concluding a leasing contract. In particular, it is important to ensure that the contract is based on the mileage and not on the residual value. In many cases, leasing also offers the option of booking additional services, such as insurance or maintenance. Although these additional services lead to higher monthly leasing rates, they also enable precise cost planning.
Advantages of leasing:
- Self-employed and freelancers can claim full tax leasing rates
- short running times enable more frequent vehicle changes to new models
- Individual services can also be booked
Disadvantages of leasing:
- no ownership of the vehicle is acquired
- if the condition is not in accordance with the contract at the time of return, additional costs may arise
- Leasing contracts cannot be terminated prematurely
Car leasing is not only recommended for business people who benefit from tax advantages, but also for private individuals who always want to be on the road in the latest models and who do not value being the owner of a car themselves.
The right solution for every type
The acquisition of a new car can therefore be realized in different ways. Which alternative suits you best depends to a large extent on your ideas, needs and financial possibilities. There is no general answer to the question of which route to a new car is the best. If you have the financial means to pay for a vehicle in cash and are passionate about owning a car, cash payment may be for you. In many cases, you benefit from additional discounts and unlimited access to your car.
Financing a car offers the advantage of not having to save long for the dream car. Depending on the model and type of financing, the lending rates, especially at the car banks, are even lower than the investment rates on the savings account. After the loan has been paid off, you become the owner of the vehicle and can continue to use it as you wish. The loan is therefore the right option if you want to get a new car quickly despite a lack of financial resources and ultimately want to be the owner of the vehicle.
If using a car is more important to you than owning it, leasing is an interesting alternative to cash purchase and loan financing. Low monthly payments, which you as an entrepreneur or freelancer can also fully deduct from tax, make this model particularly attractive. Commercial and private customers benefit equally from the advantage of being able to exchange the old car for a current model with the latest technology after a short time.