A car lease is popular among expats who need a vehicle while living in Switzerland. About half of all cars in the country are on the lease. Usually, these are company cars leased for employees. However, private clients are discovering the benefits of leasing too.
For tax reasons, leasing is beneficial for business owners and self-employed in Switzerland. If you are planning to use a car for a long time (longer than 5 years), purchasing a vehicle is a better solution due to the discounts and the immediate ownership.
If you need a car in Switzerland, you have several options: to buy it in cash, take a car loan, or sign for leasing. Car purchase requires upfront investment and commitment. If you aren’t ready for it, car leasing is a great option. Read this article to learn more about car leasing vs buying in Switzerland and what solution is better for your situation. To learn how much does it cost to own a car in Switzerland read this article.
Lease or buy a car in Switzerland: What is better?
Leasing is considered to be something in-between financing and car rental. Although car leasing is very popular in Switzerland, a car loan offers more advantages and is, in many cases, cheaper. So what should you choose: to purchase a vehicle or lease it?
How does car leasing work in Switzerland?
Leasing is becoming increasingly popular as an alternative to cash purchases and car loans. At the end of 2019, there were over 648,000 leased cars in Switzerland.
In the end, buying a car is a huge decision, and you don’t want to make this commitment right away. So leasing a vehicle is a good option for someone willing to stay flexible.
Generally speaking, leasing is a long-time car rental with an opportunity to buy a car at the end of the term. When leasing a car in Switzerland, you agree on terms and won’t be able to terminate before the end date.
A lease contract in Switzerland is usually set to between 3 and 4 years, slightly longer than in neighboring Germany, where the term is a maximum of 36 months.
After signing the contract, you will be responsible for maintaining and repairing the car. The lessee becomes the keeper of the car but not the legal owner.
During the contract period, the car is owned by the lessor. The downside is that the final purchase price will be high if you decide to make one.
If you give up a car without purchasing it in the end, the leasing company will apply various charges. These might include any damages or wear&tear issues and some fees for extra kilometers you have driven.
Leasing is a great solution for companies due to numerous tax advantages.
Car leasing is most often used for those reasons:
- companies that rent cars for their employees
- people who drive many thousands kilometres every year for private or business reasons – the value of the car depreciates quickly
- private buyers that don’t have money for down payments or can’t get a reasonable car loan
- private buyers who prefers to change cars frequently
In Switzerland, you can choose between a leasing contract term between 12 and 60 months, where 12 months will be the most expensive option.
You should choose a suitable contract duration to avoid high fees. For instance, don’t agree to a 3-year lease if you plan to work in Switzerland for 2 years. Many car leasing companies will charge outstanding payments until the term ends.
Leasing companies also set a particular mileage limit you can use in a year. Usually, it ranges from 10,000 km to 20,000 km per year. You shouldn’t underestimate the distances and pick the longest possible mileage. Otherwise, be ready to pay fees at the end of the lease for extra kilometers.
In fact, additional kilometers are billed at around 0.50 CHF per km, which can add up quickly. For driving 10,000 km more within 3 years of the lease, you have 5,000 CHF more, which is a significant amount of money.
To calculate the necessary mileage, Swiss residents travel around 30 km every day. Hence, the 10,000 km per year should be sufficient, but don’t forget about unplanned travels or even a vacation trip to a faraway country. Therefore, choosing 20,000 km is highly recommended.
Buying a car with cash in Switzerland
A cash car purchase is usually the most lucrative option in Switzerland, especially if you want to own a car for more than six years. The depreciation of a new car is very high, especially in the first three years.
Also, from a financial standpoint, it doesn’t make sense to sell it after only two to three years of holding. The disadvantage of buying in cash is, as you might think, the availability of funds – you need to have an entire amount in liquid money.
Learn how to buy a car in Switzerland as a foreigner.
Financing a car in Switzerland
When buying a car in Switzerland, you don’t necessarily need to have it all in cash – there are plenty of financing options available for expats.
Car loans are often taken as consumer loans that don’t include any particular financing purpose. You can use this money freely. The interest rate depends on the bank and your credit score.
According to Swiss statistics, in 2019, there were about 372,000 private borrowers. Meaning every 12th Swiss resident had a personal loan in 2019.
With good creditworthiness, even foreign nationals can easily get a private loan to purchase a car. Moreover, car financing is more affordable than a car lease.
To check what option will be cheaper, car lease or financing, you can use this calculator from moneyland.ch.
Despite much lower leasing rates, a car purchase is often cheaper in Switzerland. When buying a car, you can choose the insurance coverage, which already will save more than 1,000 CHF every year.
Once you have your loan paid off, the car belongs to you. At the same time, once you have the leasing paid off, the vehicle goes back to the provider unless you buy it.
Besides that, the interest on the loan can be deducted from your annual taxes. You can avoid all those obligations that come with leasing a car by financing a vehicle with a personal loan.
Cost of leasing a car in Switzerland
Before you decide to lease a car in Switzerland is crucial to know how much it will cost. Maybe car financing will be a better option in your situation.
Interest rates for leasing in Switzerland are lower than for car loans, making it an attractive option for drivers. Nonetheless, leasing comes with many other costs that you might not be aware of.
For example, lessees are exposed to higher car insurance premiums, higher service costs, lower discounts, and incidental fees like mileage charges if you exceed your limit.
The expenses are also driven up because you are required to use (more expensive) partner car services. Consequently, a lessee must pay for all repairs and maintenance, as well as vehicle tax and insurance in Switzerland.
Generally, the amount of your monthly lease rate is calculated based on these factors in Switzerland:
- Car’s age
- Model and performance
- Possible special services such as a service contract and included insurances
Here is an example of the difference between car leasing and car financing in Switzerland:
|Car price||30,000 CHF||30,000 CHF|
|Residual value||12,000 CHF||0|
|Monthly payment||458.90 CHF||727.15 CHF|
|Term duration||48 months||48 months|
|Total monthly payments||22,027 CHF||34,903 CHF|
|Total cost after purchasing the car||34,027 CHF||34,903 CHF|
As you can see in some cases car lease with the eventual purchase of the car can be even cheaper than a car loan from the start.
Learn how much does it cost to own a car in Switzerland.
Lease vs Buy
If you aren’t interested in owning a car and want to drive the latest model, leasing is a good choice. However, the bottom line is that with a car loan or purchasing it with cash, you drive cheaply and flexibly.
So how does car financing or buying a car differ from car leasing in Switzerland?
|Car financing||Car leasing|
|Used cars||Yes||Often not possible|
|Ownership||A customer is an owner from the beginning||A bank or car leasing company holds the ownership.|
|Mileage limit||No||Yes, as stated in the contract.|
|Insurance||Can be selected freely||Fully comprehensive insurance is mandatory|
|Taxes||Interest on loans can be deducted from taxes||Leasing interest cannot be deducted from taxes (only for businesses)|
|Interest rate||Interest rate is higher with car financing||Interest rate is lower with a car leasing|
|Earlier termination||Early repayment (without cost consequences) or sale of the car is possible at any time||Cancelation of the lease is expensive|
The definitive pro for car financing is that all those obligations that come with a car lease can be avoided. If you want to hold a car for a more extended period of time, a car purchase is a way to go.
While owning a car, you can save a significant amount of money on car insurance or car services. Besides that, you own the vehicle from the first minute on and can drive as many kilometers as you wish.
In the end, you should weigh the options carefully and calculate the costs for each individual case. Finally, whether or not you want to lease or finance a car depends on your long-term intentions.
How long do you plan to keep the car?
The most important question you should ask yourself when deciding on buying or leasing a car is the period you want to keep it for.
The longer you are planning to use it, the more sense purchase makes. If you intend to keep a vehicle for at least five years or even longer, then financing is usually the more favorable option.
For a shorter period, leasing is more advantageous since new cars lose the most value in the first few years. After three years, many models are worth just half the price.
Also, consider how long you are planning to stay in Switzerland.
Pros of leasing the car in Switzerland
You negotiate lease length and monthly rate upfront. Moreover, car leasing is a relatively simple and hassle-free process in Switzerland.
Leasing the car is cheaper than financing. Generally, a monthly payment is lower with the lease than a purchase (car loan). Additionally, you avoid large down payments when signing the contract. With some contracts, insurance and service are included, even the tire change you don’t have to pay then.
3. Monthly rate
Another advantage of a car lease is that you will know exactly how much is due to pay every month. The rate is fixed and doesn’t fluctuate.
4. Interest rate
The interest rate with car leasing is low, even lower than with a car loan.
The benefit is obvious – you can drive a newer or nicer car every year by signing for a new lease every time. The minimal car lease in Switzerland is one year.
By the end of the lease, you can choose another car if you want to.
You can drive a new car without a significant investment. New vehicles depreciate a lot, and financing a new car leads to a substantial loss in cash.
Furthermore, car leasing is particularly beneficial for self-employed and freelancers, as the monthly leasing installments can be deducted as business expenses.
The future value of the car doesn’t affect you as the leaser.
Generally, the lease isn’t recommended for private use, but it’s a great option if you want to drive for work or business due to the tax benefits.
9. Tax deductions
Companies and business owners prefer car leases since they are eligible to deduct leasing expenses from their taxes.
The main advantages of leasing the car in Switzerland:
- Tax deductible for self-employed and freelancers – they can write off leasing rates
- Various leasing periods
- Low rates
- Possibility to change a car by the end of the lease
Cons of leasing the car
The contract terms are often rigorous and can land you with hefty excess charges if you don’t adhere to them.
The biggest issue with leasing is that you rent and don’t own a car as it will be with financing. You don’t have legal ownership of the vehicle unless you decide to pay off the residual value at the end of the lease.
You don’t own the car; it’s like a lease of the apartment – you pay to use it for a fixed period of time. In the end, you should return or buy a car.
2. Car insurance
A significant con for car leasing is that you are required to get additional collision car insurance in Switzerland. Hence, coverage of regular third-party liability insurance won’t be sufficient.
Alternatively, you can sign for fully comprehensive insurance, but it’s also an expensive option. The fact of additional mandatory coverage automatically adds up more expenses to your car lease rate.
In Switzerland, the leased vehicle must be serviced by the original equipment manufacturer. Especially for premium brands like Audi, BMW, and Mercedes, prices are very high when compared to a regular car service.
4. Contractual inflexibility
Although leasing a car means flexibility, you are still bonded by the contract terms. For example, you can’t end the lease earlier without facing hefty fees.
Consequently, a lease is a long-term, binding commitment; consider whether purchasing a car would be a better solution.
5. Contract obligations
A lease comes with various contractual obligations, which may be very disadvantageous for you. As we already mentioned, car leasing firms oblige you to service a car in a particular service, but they also might limit your flexibility.
For example, some might allow using the car only within Switzerland. Read the lease contract throughout before signing it.
6. Tax deductions
As an individual, you won’t be able to deduct leasing costs in your Swiss tax declaration. Yet, it can be possible with car financing.
7. Early termination
One major con of car leasing in Switzerland is the high penalties that occur with early termination. Hence, canceling your contract before the end term can be very costly.
Car lessees might have to pay up to a 10,000 CHF fee for the termination of a leasing contract. Yet, the penalty can be avoided if you decide to purchase a car in the end.
8. Limited mileage
The most common type of leasing contract in Switzerland is based on mileage. A leasing company will give you a maximum amount of km that you can drive per year. All kilometers above that limit will be added up to the final payment at the end of the lease, which can be prohibitively expensive.
9. Wear & Tear
If you cause significant wear and tear on a leased car, most leases will require you to pay fees to fix them.
As you might already know, a leased car doesn’t belong to you, hence making any customization isn’t advisable or even prohibited. In most cases, lessees will need to remove all custom settings by the end of the term.
Main disadvantages of leasing a car in Switzerland:
- No car ownership
- All damages and changes made must be compensated when returning the car
- Leasing contracts cannot be terminated earlier
- More expensive insurance and other additional costs
- Obligations to service the car only in partner shops
Before signing a lease agreement, you should weigh all pros and cons. It’s also recommended to select the contract which is based on the mileage and not on the residual value.
Pros of buying a car in Switzerland
You own the car and can keep it. Also, owners can add any customizations or modifications.
You can use it for all purposes. It is a better option for private use.
If you are ready to settle for one car for a longer period of time. At the same time, you can sell your car whenever you want, and the money you make selling it can be used towards paying off the loan.
4. Distance restrictions
You can drive as often and as far as you want. No distance restrictions apply.
It’s your car, so you can do any custom design and settings.
6. Wear & Tear
You don’t have to pay extra for wear & tear on your own car. The only worry for someone who purchases the car is the loss of resalable value with the time and wear&tear.
7. Tax deductions
When financing a car with a loan, you can deduct related expenses in your tax declaration in Switzerland.
Cons of buying a car
You will pay 7.7% in sales tax (VAT) on the net price of the car when financing a car in Switzerland.
2. Monthly rate
Loan payments on cars are usually 2-3 times higher than leasing – you’re paying for the car’s entire value.
Buying a car isn’t the most flexible option. Don’t buy a car if you want to stay flexible, or change your car frequently, are not sure how long you want to use the car, or don’t plan to use it for a long time.
Cars always depreciate in value; when financing a new vehicle, you will lose a lot of money on depreciation if you want to sell it later.
Buying vs Leasing a car in Switzerland
Here are some of the most important moments you need to know when buying vs leasing car in Switzerland.
Facts about buying a car in Switzerland
- Vehicle becomes your property at the end of the contract period
- Monthly installment is calculated on the basis of the loan amount, term and interest rates
- Contract period is usually between 3 and 6 years
- In addition to the net car price you pay a 7,7% sales tax
- No limit on mileage
- Borrowers can decide for themselves how to maintain their vehicle
Facts about leasing a car in Switzerland
- Customers return the vehicle to the dealer at the end of the contract period or purcase it
- Monthly rate depends on various factors such as model, usage and leasing period
- Leasing contracts usually last between 1 to 3 years and are extendable
- You don’t pay sales tax
- You may be asked to pay for the depreciation
- For mileage leasing the mileage is limited, you pay for extra km
- Customers must comply with the service agreements of the providers
Who should choose car leasing in Switzerland?
In most cases, leasing contracts are only worthwhile for the self-employed and freelancers, who benefit from tax deductions, and for people who don’t want to commit to a long-term contract.
However, leasing a car in Switzerland is cheaper than purchasing or financing it.
Consequently, a car lease can be a good solution for people in the following situations:
1. You are a self-employed/business owner
A car lease is a great option for self-employed, business owners, and freelancers in Switzerland, but only if it’s required for business use. In that case, you can offset leasing costs as business expenses.
2. You have short-term plans in Switzerland or unsure
If you don’t know how long you will stay in Switzerland or if it’s more than a 1-3 years plan, leasing a car is better. In the end, you will reduce your liability in the country since most car loans are taken for terms between 3 and 6 years.
3. You like to change cars
If you love driving new cars and trying different models, leasing a vehicle is definitely a better option.
4. You don’t have a large budget to purchase a car in cash or aren’t qualified for a car loan
To get a car loan, you will need to have a down payment of several thousand francs. Otherwise, many traditional banks will refuse your application. In addition, you will need to have good creditworthiness to be qualified for a loan.