Car Leasing: What It Is and How It Works

Leasing a car allows you to drive a vehicle for a specific period by paying a monthly fee: how it works, the differences from long-term rental, and when it’s advantageous.

Car leasing is a formula that, through the payment of a monthly fee, enables you to drive a vehicle for a predetermined period.

Like renting, leasing also entails that the customer is not the owner of the vehicle; the leasing company is. However, unlike renting, at the end of the contract, the customer always has the option to purchase the vehicle and thus assume ownership. In this sense, leasing is a middle ground between purchasing and long-term renting.

What is car leasing and how does it work?

Car leasing is a vehicle financing contract with a variable duration of 3 to 5 years, distinguishing itself from both purchasing and traditional financing because the owner of the vehicle is not the user, but the leasing company. However, there is always the right to buy back the car through a final balloon payment at a predetermined price at the time of contract signing.

Precisely at the end of the agreement, the customer can decide whether to return the vehicle to the leasing company, buy it, or replace it with another leased car.

Differences between car leasing and long-term rental

The main difference between leasing and long-term rental lies in the services, which are usually not included in the leasing contract, except for full leasing. The second difference lies precisely in the buyback option, which is not always considered in long-term rentals.

How much does leasing cost?

Depending on the type of car chosen and the contract, car leasing typically ranges from 1500 to 5220 DKK (200 to 700 €), on average more than the rental rate. By choosing a higher buyback price, the customer, however, has the opportunity to lower the monthly installment. This type of agreement is widespread, especially for expensive cars.

Types of leasing

In addition to classic car leasing, known as financial leasing, several types of leasing have emerged in recent years: we are talking about operational leasing, which works exactly like a rental but does not include services and penalties in case of excess mileage, and full leasing, which also includes a range of services, primarily insurance and maintenance, in addition to the right to buy back the vehicle at the end of the contract.

A path similar to car rental, which in recent years has expanded its horizons, including not only the classic long-term formulas but also medium-term car rentals.

Who benefits and who doesn’t

Car leasing is beneficial for companies, which can deduct 100% of the asset from income if they use the vehicle exclusively for work purposes, and for individuals who drive a high number of kilometers (over 35,000 per year) and want to take advantage of the opportunity to buy back the vehicle to preserve its value over time. This is especially important for expensive and high-end cars. Alternatively, if the vehicle is not bought back, leasing is also suitable for those who want to drive a new car all the time.

Who does car leasing not benefit? Those who choose a small car and those who, in general, subject the vehicle to high wear and have a high accident rate. In this case, there are naturally expenses that weigh on the wallet, and the advantage of buying back a car that has been used for a long time disappears.

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