Buying a car in Germany—to lease or to finance?

Spontaneous trips to the lake, stashing your groceries in the trunk: There are all kinds of perks to having your own car. But even a used vehicle costs a few thousand euros—what if your budget won’t stretch to buying a car in Germany outright? Luckily, there are ways you can finance your new car, including leasing. In this article, we’ll go over your options and what the perks and drawbacks are. You’ll be on the Autobahn in no time!

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The term might sound familiar, but how do you actually go about leasing a car in Germany? With leasing, you pay a monthly fee. Generally, lease agreements last for two to four years, and there are different structures available. “Mileage leasing” means that the monthly amount is based on the mileage you’re likely to drive. Or, there’s “residual value leasing,” which is based on a calculation of how much the car will be worth at the end of the lease period. In most cases, you need to give the car back to its original owner (referred to as the “lessor”) at the end of the contract. On average, you’ll spend less than if you’d bought a car—and you don’t need to commit to a large purchase.

Leasing a car in Germany has other perks, too:

• The monthly fee is often lower than other financing options, like loan installments.
• You can enjoy the luxuries of the latest model—and then swap for another new car at the end of the lease term.
• If you’re self-employed and get the car lease for work, you can offset the leasing installments from your taxes. That said, the tax benefits don’t apply if you use the car for personal purposes.
• Depending on the contract you have, you might get money back at the end of the term if you’ve driven less than agreed (known as mileage “shortfall”).
• You can revoke traditional lease agreements and residual value agreements within 14 days. For mileage lease agreements, the 14-day right of cancellation isn’t protected by law, but many providers offer it anyway.
• Having a clear sense of how long you’re renting the car for makes it easy to plan your expenses.

Here’s a sample calculation:

Let’s say you lease a near-new Renault Twingo for 36 months, with expected mileage of 10,000 km a year. According to mobile.de, you’ll pay €131.64 a month, including VAT. If you increase the term to 60 months, you’ll pay €106.74 a month. The car has a gross list price of €12,183, so leasing is a great value option, with the total lease amounting to €6,404.40 for 60 months. But don’t forget that you’re responsible for regular maintenance, taxes, and insurance—all expenses that you have to include in your budget. While you can find all-in packages that include these expenses, they come with higher monthly installments.

Tip: you can get a lease agreement which includes a right to buy, or a pre-emptive right. This gives you the option of buying the car at the end of the contract. The final purchase price depends on the residual value of the vehicle.

Of course, leasing a car comes with some drawbacks, too. You generally can’t cancel lease agreements early, even if the car is stolen or written off, and sometimes shorter terms are better, although the monthly payments are higher. Other potential drawbacks include:

• You might rack up additional costs if you go over your mileage limit, depending on your provider and the contract. In our example above, you’d be charged 4 cents per excess kilometer you drive. In other quotes, there’s only a low reimbursement for mileage shortfalls, if any. Make sure you read the small print!
• You’ll typically have to go to an authorized workshop for any maintenance and repairs. You should also check whether someone else is allowed to drive the car or whether you can travel with it outside the EU.
• If you lease a car, you should do your best to avoid scratches and dents. Any cosmetic or structural damage can affect the value of the car and might cause problems for you when the lease period ends. 
• A credit check is a must if you’re considering a lease. If you have a negative Schufa rating, you might find it tricky to set up a lease.

Prefer to own your car? It doesn’t matter if it’s a new or used vehicle—you can use a loan to finance your purchase. With financing, you borrow money from a bank or another financial institution to buy the car outright. Then, you pay back the loan in monthly installments, plus interest, over a fixed period of time. For some models, you can finance your car without an advance payment, with the entire amount covered by monthly installments. Monthly loan repayments are generally higher than lease installments. And one major perk: the car is all yours at the end of the term.

Terms are often stretched over several years because you need to pay the full purchase price for the car, plus the repayment installments for the loan—something that doesn’t apply to leasing. So, the drawback of financing is that you’re tied down financially for a while. Changing jobs or taking a sabbatical might be harder when you’ve got ongoing loans than if you’re debt-free.

Plus, your credit rating is very important—you need a positive Schufa score to get a car loan. But there are ways to improve your credit, like consolidating ongoing loans or paying them off. The amount of credit you get, and how long you have to pay it back, also depends on your income. When you’re financing a car, you need to be able to put money towards it every month. Here’s an example using our loan calculator:

Let’s say you’re looking at buying a car in Germany. You want a new model worth €10,000, and you need a loan for it. Your monthly budget is capped at €150, so you get a loan with a term of 84 months. You pay monthly installments of €139 over seven years at a 4.59% effective annual interest rate. By the end of the term, the total amount you pay back is €11,676.00. If your financial situation changes and you’re able to increase your payment each month, you can shorten the term and lower the amount you pay back. Adjust the terms to find the monthly installments that are right for you!

So, what’s better: leasing a car, or putting it on finance? There are pros and cons to each option. At the end of the day, your personal financial situation is the biggest factor in your decision. You should also consider what you need the car for and for how long—start by trying out car-sharing providers in the city or rental cars while you’re on holiday. This might help you figure out whether buying a car makes sense for your lifestyle. Plus, you don’t have to worry about your credit rating with options like these.

Did you know? There are even trading platforms where you can buy cars with cryptocurrency.

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You’re in the driver’s seat, but we’re here to help. N26 offers you 100% mobile banking and total flexibility. You can apply for a loan of up to €25,000 in just a few minutes—with zero obligation. Need to free up money for your monthly lease payments? With N26 Installments, you can divide qualified payments you’ve already made into manageable installments and pay them back over time. And with N26 Spaces sub-accounts, funding your car yourself is easy. Simply set aside money towards your personal savings goals every month and get ready for your new ride. Plus, you can use Rules to set up automated transfers from your N26 Spaces, each with their own IBAN, to ensure you make your monthly payments on time. There’s nothing standing between you and your dream car!