Car loan

How sensible is it to finance a car?

For many people, a car is more than just a means of transport – it can be a tool for independence, flexibility and even professional success. If you have sufficient financial resources, a cash purchase can be the most cost-effective option – especially if you want to use the vehicle for a long time. This is because new cars depreciate considerably in the first three years.

It makes neither financial nor economic sense to buy a car and sell it again after only two or three years with a considerable loss in value. With a cash purchase, you immediately become the vehicle owner, which gives you the freedom to choose the equipment and insurance. The only disadvantage of a cash purchase is that you have to pay the total price of the vehicle in cash immediately.

To avoid this disadvantage, you can take out a car loan in Switzerland. A car loan allows you to purchase a vehicle immediately without having to save up money for years. Similar to a personal loan or cash payment, the new car becomes your property directly with a car loan. The monthly instalments allow you to use the car immediately and spread the costs over a certain period of time.

In addition, a car loan can be the optimal solution for vehicle financing in other cases:

• When the purchase can’t wait.
• If you are expecting a new addition to the family.
• If your current vehicle is defective.
• If you don’t want to touch your savings.

Car loan vs. leasing

In addition to a car loan, there is another vehicle financing option available to you: leasing. Both options offer different advantages and disadvantages.

A car loan allows you to buy the vehicle and pay off the sum over a certain period of time through monthly installments. You own the vehicle immediately after purchase. Therefore, car loans often offer greater flexibility in terms of vehicle use and ownership, as you can keep the car for as long as you want. Furthermore, you can customize and modify the vehicle as you wish – without any restrictions from the lender.

Advantages:

• Thanks to flexible loan terms, you can adapt the repayment to your financial needs.
• The vehicle is yours, which gives you a feeling of ownership and freedom.
• Depending on the contract, you have the option of repaying the loan more quickly, which saves you interest costs.
• You have a free choice of workshop for servicing and repairs, giving you flexibility and control over the maintenance of your vehicle.
• You can claim the interest costs against tax, allowing you to benefit from considerable cost savings.

Disadvantages:

• As you are the owner of the vehicle, you also bear the risk of depreciation, which in turn can affect the resale value.
• Car financing can affect your credit rating and may have a negative impact on other financing options.
• You have to pay the costs for repairs and maintenance yourself.

With leasing , on the other hand, you rent the vehicle for a fixed period and pay monthly leasing installments. At the end of the leasing contract, you return the car or have the option of buying it at a previously agreed residual value. Leasing contracts often offer lower monthly payments compared to car loans and usually require less or no down payment.

Leasing options can also be attractive if you want to drive a new vehicle every few years, as you can sign a new leasing contract every few years.

Advantages:

• Leasing contracts often have a wide range of terms, so you can choose the term that suits you best.
• When your leasing contract expires, you can conclude a new contract and simply switch to a more up-to-date model.
• You bear no risk of loss of value.

Disadvantages:

• Car leasing can also affect your credit rating and have a negative impact on other financing options.
• At the end of the leasing contract, you must return the vehicle to the lessor, as you do not acquire ownership of the vehicle.
• If the contractually agreed kilometer limits are exceeded or the vehicle is damaged, you can expect high additional costs. In addition, you will not be able to use the vehicle as you wish.
• If you wish to terminate the leasing contract early, you must also expect additional costs.

Which alternative is better?

All in all, a car loan offers significantly more advantages – especially in terms of ownership, flexibility, and freedom. In contrast to leasing, with a car loan, you as the borrower acquire immediate ownership of the vehicle, which offers you a long-term investment and greater financial security. A car loan also gives you a free choice of insurance and a workshop for servicing and repairs.

Another key advantage of a car loan is the tax deductibility of the interest costs, which is not possible with leasing contracts. As such, a car loan often gives you greater financial flexibility and control over the vehicle, making it a more attractive option for many car buyers.