10 mistakes you must avoid at all costs when leasing
1. Not understanding how leasing works
Thanks to gowago.ch, finding a leasing is as easy as child’s play. However, leasing entails some knowledge about its structure and what it represents. We give a guide on why leasing here. To learn more about the different kinds of leasing, we have compiled an overview article for you about the different leasing variants and which companies offer them.
Here’s a digest and an example on how leasing calculation works. The monthly payments comprise of interest and a principal. The principal or the actual payment for the car is based on the value of depreciation for each specific vehicle over time. Let’s take a Skoda Octavia. So the manufacturer’s suggested retail price, or MSRP, of this car is CHF 27,880 for the most economic version. After 48 months (a typical length for a car lease), the car will be worth around CHF 4,000. Without interest, each monthly payment would then be (27’880-4’000)/48= CHF 580 to accommodate the amount of depreciation this vehicle experiences, which happens to be very low in this case. As Skoda is a popular model in Switzerland, it holds its value quite well even after three years. This calculation has been made with a 0% interest rate and 0% downpayment.
Be sure to choose your vehicle wisely and realize that sometimes a better vehicle isn’t necessarily more expensive to lease, it will all depend on the residual value and is tied to the market demand and it depends if you own the car after. In Switzerland, looking at the number of premium cars on the road it won’t be surprising to see a Nissan Juke at the same leasing price as a well equipped Audi A3.
One of the biggest mistakes in leasing is underestimating the residual values, which are in fact the biggest factor on the monthly price for your new car. Research vehicles and their values before making a decision on which one to lease.
2. Underestimating your Mileage
When starting a lease, the amount of miles the client will put on the car is predetermined. Most of the time, dealers will suggest anything from 10,000 to 20,000 km per year. If that’s how much a client drives, excellent. If that’s not the case, you need to change your mileage before signing the contract. After your signature, you will have to stick to the mileage. Really think about how many km you drive a year because if you sign up for 10,000 km a year and end up using, let’s say, 15,000 km, dealers could charge up to CHF 0.30 per exceeding km which would be a whopping CHF 1’500 more each year of the lease. Some dealers might even charge you one franc per kilometre. It is much less expensive to purchase extra km package beforehand. Just remember to be reasonable. For information, the usual swiss citizen drives around 30km per day, meaning around 10000 km per year. However, don’t commit to 10000 km a year as a new year’s resolution, for example. It’ll cost you in the end. Be sure to ask about this before signing anything. Negotiate!
3. Backing out of the lease term early
Each lease has a different way to deal with early termination, but none of them are friendly. If you commit to 3 or 4 years, really commit to it. For example, some companies will demand that you pay the remainder of the monthly payments immediately upon termination. On top of that, many also add on a fee of at least CHF1000. Essentially, you have to pay the remainder of the depreciation costs anyway, so you might as well just continue to lease the car. There’s really no good alternative whatsoever besides buying the car cash early from the dealer - but even here, a penalty fee could be coming your way, depending on the leasing company.
4. Leasing for too long
Most new vehicles have a manufacturer’s warranty that lasts between 3 and 4 years. Coincidentally, most lease terms should last between 3 and 4 years. The last thing you want to be doing is paying for maintenance past the warranty on a vehicle you don’t own. There’s very little reason to lease a vehicle longer than 4 years. That’s also one of the benefits of leasing; you constantly upgrade to a new vehicle. If you really want to be in a car long term, just buy a car with a private auto credit.
5. Not knowing your credit score
Unlike in the U.S.A where credit scores are tied to your social security number, in Switzerland you don’t have a universal, legal credit score. However, banks rely on personal data and statistics that can influence your credit and thus the price you will get for the car, or even in extreme case if you can get a leasing at all. A couple of factors influence heavily this score and the most important of them is if you’re a good payer. If you have pursuite you may be in trouble to get a leasing for example. However, some people underestimate that they can have a middle-range score just because they changed addresses a couple of times in a short timing or if they have an old unpaid bill they forgot about years ago. To be sure to be in the green, try to run a private CRIF check, as they will allow you to get your score and recommendations to improve it. See here.
6. Not maintaining the car during the lease term
After you’ve established and negotiated the fine print, make sure to keep up with it. It’s easy to have a car for two years and let a few things go, but that will cost you in the end. The dealer may not explain just how expensive it is when there are little scratches, little dents, etc., so ask before. Often, it’s less expensive to simply repair the small things yourself. Usually, if the scratch or ding is a couple of centimeters or less, that’s considered normal wear and tear, but always make sure to know beforehand.
7. A too large downpayment
There’s too much risk involved with paying a large down payment. Let’s say, for example, that the new vehicle is stolen or totaled within the first few months. The dealership would be reimbursed for the damages, and while the consumer would not be liable for those damages, it’s entirely possible that the consumer would not be reimbursed for the down payment.
So what should you pay for a down payment? Well, it’s frequently possible to put zero down payment on a lease, and we see more and more of this in Switzerland. This isn’t always possible and can sometimes make the monthly payments a little more expensive, so the recommendation of Gowago.ch is to go for 15% of the car down.
8. Buy unnecessary options
Simply put, in the automotive purchasing process you will always be tempted to buy the best, the most equipped cars. Car salesmen have an interest in selling you the most expensive car, so think twice if you really need that option in particular. Therefore, be sure to use the smart filters on gowago.ch inventory finder to find the car that fits your needs, not the dealer’s.
9. Buying your leased vehicle at the end of the lease
This isn’t necessarily bad, but it definitely can be. Most often, the value of the car at the end of the lease term will have already been decided when first starting the lease - the so-called residual value. If the car is well taken care of, then yes, it could be in your interest to purchase the vehicle. On the other hand, once you purchase the vehicle after 3 or 4 years, that vehicle is probably no longer under warranty and you’ll be paying for any maintenance that happens after. It’s possible to purchase an extended warranty, but it may be in your interest to simply lease another vehicle. Some other tips to help you return your lease smoothly.
10. Not being (well) prepared before entering the dealership
The power of the internet is to make information accessible to everyone. Therefore consumers are more and more prepared when they are interested in a product, sometimes they know even more things than the dealership tehmselves. However when we take a look at the list above, on top of everything regarding the model selection that is right for you, there is a lot to know before being confident enough to walk through the door of the dealership. We developed gowago.ch for this exact reason, to make information affordable and easy to everyone, regardless the level of prior knowledge. Browse gowago.ch to be sure you have the right information and plan to visit one or a couple of dealerships full of confidence when you finally pass that door.
Be sure to check our other articles to become a real car leasing expert for your next new dream car.