gowago.ch makes car leasing a breeze. It is still important that you know certain facts about the structure and meaning of leasing. In our guide to Why Leasing? you will find a summary and an example of how leasing works.
Monthly payments consist of interest and the loan amount. The loan amount, or the actual payment for the car, is based on the value a vehicle loses over time. Take a Skoda Octavia, for example. The manufacturer’s recommended retail price (MSRP) for the cheapest version of this car is CHF 27,880. After 48 months, a typical period for a lease, the car still has a value of about CHF 4’000. Without interest, this would mean a monthly payment of CHF 580 (CHF 27,880-CHF 4,000 / 48) to compensate for the loss in value of the vehicle. This is very low in this case and since Skoda is a popular brand in Switzerland, the value of the car is still very high after three years. This payment example was calculated using a 0% interest rate and a 0% down payment.
Be sure to choose your vehicle wisely and be aware that sometimes leasing a better car is not necessarily more expensive. The leasing rate depends on the residual value of the car, which in turn is tied to market demand. Whether or not you want to keep the car after the lease expires also has an impact on this. In Switzerland, given the number of premium cars on the road, it’s not surprising to see a Nissan Juke for the same leasing price as a well-equipped Audi A3.
One of the biggest mistakes in leasing is underestimating the residual value, which in fact has the biggest impact on the monthly price of your new car. So carefully research the value of the vehicles before making a decision.
2. Underestimate how many miles you’ll drive
At the beginning of the negotiations, the number of kilometers included in the leasing offer is determined. Mostly the dealer will suggest between 10’000 and 20’000 kilometers per year. If this corresponds to the number of kilometers you actually drive per year, that’s perfect, if not, now is the time to change this point of the contract. Be really aware of how many miles you drive in a year. Because if you sign your contract with an annual mileage of 10’000 km, but then drive, for example, 15’000 km, the dealer can charge up to CHF 0.30 per additional kilometer driven, which would mean an unpleasant additional CHF 1,500 per leasing year. So it will cost you much less if you choose a larger mileage package in advance. Just remember to be realistic. For your information: The average Swiss drives about 30 km per day, which is approx. 10’000 km per year. Don’t make the 10’000 km per year your New Year’s resolution, or you may end up paying for it. In addition, dealers often buy back miles not driven at the end of the lease. So be on the safe side and ask before you sign your contract. Negotiate if necessary!
3. Get out of the leasing contract early
Each leasing provider has a different way of handling early contract cancellations, but none of the options will work out in your favor. If you sign for 3 or 4 years, make sure you can commit to it. For example, some companies will charge you the full balance of the remaining monthly payments until the end of the contract. Others charge an additional fee of CHF 1’000. Basically, you won’t avoid paying the full amount of depreciation, so it probably makes more sense to just let the lease go on. There is no real alternative, unless you decide to buy the car out of the contract early.
4. Leasing for too long
The majority of new cars have a dealer warranty between 3 and 4 years. Consistent with this, most leases should have a term of 3 to 4 years. The last thing you want is to pay for the maintenance and upkeep of a car you don’t own after the warranty expires. There is almost no reason to lease a car longer than 4 years, because that is one of the advantages of this type of financing: your constant upgrade to the newest vehicle. If you want to own a car for a longer period of time, it is best to buy one through a private car loan.
5. Not knowing your credit score
Unlike the US, where credit is tied to a person’s social security number, in Switzerland we don’t have a general, legal credit score. Banks rely on personal data and statistics that can affect your credit and thus the price of the car or, in extreme cases, even decide whether you can take out a lease at all. This credit score is heavily influenced by a few factors and the most important one is whether you are a reliable payer. Those who have been criminally prosecuted in the past might have difficulties to take out a lease. Some people also underestimate the fact that just by changing their address several times in a short period of time, they have a mediocre credit score. Or because they forgot to pay a bill years ago. To be on the safe side, try to get a private CRIF report. This allows you to view your credit score and also gives you recommendations on how to improve it: CRIF Check.
6. Not maintaining the car during the leasing period
After you have negotiated and set the fine print, make sure you stick to it. It’s easy to own a car for 2 years and just overlook some things, but unfortunately it will end up costing you money. The dealer may not tell you in advance how much small scratches, dents and the like will cost you, so ask beforehand. Most of the time it is cheaper to have small damages repaired by yourself. If the dent or scratch is smaller than a few inches, it will be checked off as normal wear and tear in most cases, but we advise you to always ask about it up front to be safe.
7. Making too high a down payment
If the down payment is too high, there is an increased risk. For example, let’s assume the new vehicle is stolen or totaled in the first few months. The dealer would be compensated for the damage, but it’s possible that even though the buyer is not at fault, they may not be refunded the down payment. So how much down payment makes sense? Often leasing can be done without any down payment and we see this more and more in Switzerland. However, this is not always and everywhere possible, and in addition, it makes the monthly installment higher. The recommendation of gowago.ch is therefore a 15% down payment.
8. Buying unnecessary additional options
This is easier said than done, because during a car purchase you are always tempted to buy the car with the best equipment. Car salesmen have an interest in selling you the most expensive car, so always think twice about whether you actually need certain options. Use the clever filters on gowago.ch on interior design and make sure you find the perfect car for you and not for the car salesman.
9. Buying the leased vehicle after the contract expires
This is not necessarily a bad idea, but in certain cases not recommended. In most cases, the value of the car at the end of the term is already determined at the beginning of the contract – the so-called residual value. If the car has been well maintained, it may well be in your interest to buy it. Best you check the market value before you make a decision. On the other hand, after 3 to 4 years the car has no more warranty and you have to pay for the service and maintenance from now on. There is often the option of an extended warranty, but at best it is more in your interest to simply lease a new car. More tips for returning your vehicle.