Rent a car or take out a loan?

If your dream car is more expensive than you’re willing to take out of your bank account at once, that shouldn’t stop you from driving. when renting borrowing You are looking directly at the vehicle. A rental agency rents it to you. This means that you don’t own the car, but can buy it after the lease expires. Until then, you pay a flat monthly fee.

When you get a loan, you borrow the money from a financial institution and Purchasing your new vehicle. Then you owe the bank money you pay in predetermined installments including interest.

“The main difference is the ownership structure,” says Mahir Yalin, Head of Consumer Finance, Sales and Operations at FinanceScout24. “With the loan, you are the owner of the vehicle, with the rental you are only the renter of the vehicle,” he explains. This includes full coverage insurance that covers all damage, but is also more expensive than partial coverage insurance. “You’ll also usually be told how often and to whom you should have the car serviced.”

pros and cons

What are the benefits of leasing? “You have great flexibility when it comes to contract composition, monthly installments and residual value,” Lean explains. “You only pay for the useful life and usually have a lower interest rate than a loan.” However, restrictions and conditions can make the ride enjoyable. If you rent a car, you can only do a certain number of kilometers – anything beyond that will be more expensive. “Depending on the contract, the rental company also forbids you to go abroad or only allows you as a driver.”

What is a loan? “You own the car from the start,” says the loan professional. “You can deduct the debt interest from your taxes, you don’t need comprehensive insurance and there are no mileage restrictions.” In addition, loans with maturities of up to 120 months are available if a lower monthly rate is desired. “Another advantage is that you can cancel and repay the loan at any time and at no additional cost, but the rental can sometimes incur high costs.”

let’s do the math

Let’s say the car you want to rent costs 21,000 francs and its estimated residual value is 1,000 francs. You pay 596.90 CHF monthly installments with a 48-month maturity and an interest rate of 5.95 percent.

If you want to buy the car immediately, you need to take out a loan. With a down payment of 1,000 francs, the loan amount is 20,000 francs. The 8.95 percent interest rate rises to CHF 534.95 per month, again with a 48-month maturity.

In this example, the rental is more expensive and you are left without a car unless you buy it and pay what is known as the residual value.

What is more attractive now?

Now the question arises: to rent or to take a loan? “If it’s important to have ownership, no restrictions or regulations, and saving on taxes, you’re better off getting a loan,” says Mahir Yalin from FinanceScout24. “But if you always want the latest model and don’t value owning it, then renting is a good choice.”