When buying a new or used car, there are several ways in which it can be financed. On top of a classic purchase, vehicles can also be leased and borrowed for an agreed term. Through the evolution of electromobility there are other forms of financing now emerging and car subscriptions are now taking hold of the automotive market.
How do the forms of financing differ? Which type of purchase models make the most sense? INSTADRIVE has carefully analysed the acquisition methods and would like to share with you a complete overview:
The Classic Car Purchase
Buying a car is usually associated with a large financial investment, which of course is not everyone. For this reason, a financing model is often used when buying a car, by means of a financial loan. The car of your choice can then be paid off through a (car) personal loan offered by a lender, which is usually a bank.
Probably one of the biggest advantages for the buyer is that the car can be paid off in full immediately to the dealer. As a result, certain discounts are usually be offered by the retailer, as they have no risk if the entire purchase price is paid immediately. The load conditions can usually be agreed individually with the lender and the sum of money can be conveniently paid off in the agreed amounts, in instalments. With a car loan the borrower must put the agreed sum of money into a car and may not use it for other purposes. The reason for this is that with the car loan, the car serves as collateral for the lender. At the same time, with the car loan, the borrower benefits from the fact that the terms are usually more favourable than with a non-single- purpose loan.
It is of course cheaper for the customer if they have the financial means, and they have funds to cover the full purchase price themselves meaning no loan agreement. In this case there are no financing costs. However, it should also be noted that the customer should have further funds available in addition to the purchase price of the vehicle, on the one hand to be able to pay ongoing costs such as insurance or services, and on the other hand to be prepared for unforeseen workshop visits and repairs. The older the car, the higher the probability of defects in the vehicle, which are not always covered by the manufacturer’s warranty.
If the customer is also the car owner, there is the advantage of not having to stick to the agreed mileage limits or need to use designated workshops for repairs. Although the customer does not have to pay as much attention to the condition as with leasing, this is still strongly recommended, as the condition will play a major role at a later stage when it is sold. This is also of great importance in the case of a private sale, as the typical buyer of privately sold cars do their homework and is usually well informed about any flaws in the model. When viewing the car, even the smallest defect can lead to a reduction in value, which is then reflected in the sales price.
Another advantage of buying is that you are the owner (except for loan financing, where the car is owned by the credit institution until it has been paid off in full). If you are the owner, you will also receive the proof of ownership, the COC paper. The car is also registered to you, which means that you have sole control over your car.
However, there are some downsides. A new car buyer should be aware of the sudden depreciation, which begins from the moment the buyer drives the vehicle from the dealership for the first time. While the depreciation curves for established vehicles such as the VW Golf or the Skoda Octavia could be calculated relatively far in advance, this will be more complicated in the future.
As most electric vehicles do not yet have a longstanding history, it is not currently possible to forecast how the depreciation curves will develop. In addition, a very rapid development can currently be seen in electromobility, especially in battery technology. A lot is happening in the e-vehicle market now.
It is unclear how exactly the depreciation curves of combustion vehicles will develop. There are large subsidies and advantages to choosing a car equipped with alternative fuel. Many countries have already decided to discontinue gasoline and diesel vehicles and they will not be able to be registered in a few years’ time and will not be saleable on the used car market, due to increasingly strict restrictions.
Lease a Car
A possible alternative to the classic car purchase is leasing. Here you get your dream car through a leasing company, which allows you to have the car for an agreed period. These periods are usually around 3 to 5 years, and in rare cases a little shorter. In the case of leasing, the lessee pays the lease company a certain monthly leasing rate for the use of the vehicle. As soon as the term has expired, the lessee usually has the option of returning the car, continuing to lease it, or even buying it outright. With a slightly smaller budget, leasing also has the advantage over buying with a loan that the rates are lower, and a larger group of potential interested parties can be addressed as a result. Of course, it should be noted that at the end of the term, you do not own the vehicle yourself.
It is also worth mentioning that not all leasing is the same. In most cases, the customer is dealing with residual value leasing. This is basically structured as follows:
The customer decides on their dream vehicle with a purchase price of, for example, € 30,000. A leasing period of, for example, 36 months is selected and a residual value of, for example, € 15,000 is contractually agreed. With a down payment of € 5,000 and theoretical 0% financing costs, the leasing rate is then around € 278. Of course, the customer only receives the car for this amount, but needs to reckon with additional costs for the fully comprehensive insurance as well as the car service and maintenance. As a rule, the user also nees to organise their own breakdown cover and roadside assistance, which adds even more costs. Furthermore, the financing itself also costs a certain amount. When calculating all these extras, the customer should reckon with costs of around € 450 per month.
The residual value calculated at the beginning can of course be calculated to be higher, which reduces the monthly leasing rate for the car somewhat. The residual value, which can already be calculated relatively accurately for vehicles that have been available on the market for several decades, such as the VW Golf or the Passat, is much more complicated to consider for electric cars. The much-needed long-term experience is largely lacking with EVs, which means that the depreciation curves for electric cars cannot de facto be predicted. Since most customers want the lowest possible rates for electric cars, the residual value is set relatively high. The customer bears the very high risk that when the vehicle is returned it will be lower than the residual amount agreed at the beginning. If this is the case, the customer still needs to pay the difference to the lessor, even though he has already returned the car. Since the lessor would like to sell the vehicle for a profit afterwards, he actually has to document even the smallest damage to the vehicle using a magnifying glass! This can also contribute to the residual value decreasing with each damage that is identified.
In some cases, the customer can be offered so-called kilometre leasing. With this leasing option, the residual value is not crucial for the monthly leasing rate, but only the annual mileage. This gives the customer significantly more ability to plan in terms of costs, as there is no residual value risk. Since the residual value risk does not magically disappear, but lies with the lessor, the leasing rates are higher than with residual value leasing. The electromobility sector, shortly before the end of 2020, offered very favourable kilometre leasing conditions to avoid the very high CO2 fines or at least to reduce them. The fact that such favourable conditions meant a loss of business for some manufacturers was accepted, since the financial disadvantage for the manufacturer was still better than CO2 fines, which ran into the billions. Nevertheless, the manufacturers naturally want to make a profit with every single vehicle, which is why the conditions for kilometre leasing will rise again very soon.
The Modern EASING Subscription
EASING which is a combination of “Easy” and “Leasing”, is the modern long-term subscription for your electric car. EASING is a fully-fledged alternative to buying or traditional leasing. As with leasing, the periods with EASING are usually 3 to 5 years long, whereby the customer always can extend his EASING contract. As with leasing, the customer makes a down payment of a certain amount at the beginning and then makes his monthly instalments during the term. Unlike leasing, EASING offers you a complete package, so your mobility costs include not only the costs for the vehicle itself, but also a variety of exciting additional services such as fully comprehensive insurance including passenger accident insurance, services and maintenance, a 24/7 Roadside assistance, and much more. All these factors must therefore be added to a purchase or leasing option to be able to be carry out as a direct cost comparison.
EASING offers you the modern option of “using instead of owning”. In contrast to other subscription providers, with EASING you do not just get a car, but your dream car, as you can configure and personalise it individually. The configurator is simple, you choose your dream car, the colour you want and one of the three equipment packages. After selecting the contract term, the annual mileage, and the amount of the down payment, you can have your no obligation offer sent to you by email.
During the contract period, you can use the electric car as if it were your own. And when you return it, you don’t have to worry about the residual value, as there is no residual value calculation with EASING. The EASING offer is nevertheless very attractive in terms of price, as the car does not have to be resold for profit after you have returned it, but simply moves on to the next cycle. The next user knows that it is a used vehicle, which may show signs of use appropriate to its age, but the conditions in the second cycle are even more favourable.
EASING combines many advantages for you, so that you are offered a sustainable, simple and inexpensive package and can make a risk-free entry into electromobility.
Try it out today and configure your personal dream car here!