10 mistakes you must avoid at all costs when leasing
Gowago makes car leasing easy, transparent and online for you. Because your car should make your life easier, not harder. Gowago saves you the hassle of quotes, endless garage visits and opaque financing.
But even then, it's important to know the facts about the structure and significance of leasing. In our guide to Why leasing? you'll find a summary and an example of how leasing works. [At the same time, we have also created an overview of the different leasing and financing methods and their providers so that you have a complete overview.](https://gowago.ch/en/blog/ueberblick-leasing-schweiz ‘What leasing options are available and who offers them?’)
But now, without further distractions: the most common mistakes made when leasing, explained for you – so you don't have to make them. Let's Go.
1. Not understanding how leasing works
In short: one of the biggest mistakes when leasing is not knowing how leasing actually works. If you don't understand how the residual value, the lease term, the depreciation or the interest rate affect your monthly instalment, you won't be able to assess whether you are getting a good price or not.
So, how does leasing work? Look out: We need to do some maths.
Your monthly payments consist of the lease amount and interest. The lease amount, or the total sum of financing the car, is defined by the estimated depreciation over the lease duration.
You've probably heard the saying: as soon as a car leaves the dealership for the first time, it's already worth half as much. It's not quite that drastic. In the first few years after purchase, a car loses an average of 20% to 40% of its value. The depreciation varies depending on the car and how it is used. The estimated value at the end of the lease is called the residual value.
‘This results in the following formula: Car price – residual value + interest / lease term in months = monthly instalment.’
The residual value is influenced by the lease term and the selected annual mileage. Longer lease term + more kilometres per year = lower residual value. Short lease plus low mileage = higher residual value.
Let's take a look at an example using a Skoda Octavia.
The manufacturer's recommended retail price, also known as the MSRP, for the cheapest version of this car is CHF 27,880.
After 48 months, a typical leasing period, the car has a residual value of CHF 15,218. Without interest, this results in a monthly payment of CHF 390 (CHF 33,940 minus CHF 15,218 divided by 48) to compensate for the vehicle's depreciation. (This example was calculated with 0% interest, 0% down payment, and 10,000 km per year).
‘A higher residual value means lower monthly instalments – better if you want to return the car at the end of the lease. A lower residual value means higher monthly instalments – better if you want to take ownership at the end.’
The residual value also depends on the market demand for your car. A Skoda, which is reliable, robust and very popular in Switzerland, will have a higher market value at the end of the lease than a Maserati, which is more of a niche car – hence the residual value will be proportionately higher. This, then, is where used car leasing becomes interesting – after just a few years, a luxury car can cost the same per month as a car that was more of a budget option when new.
Therefore, pay attention to the residual value of your car. Residual values that are too low mean high monthly instalments for you. What you want is a residual value that is realistic. At Gowago, we calculate our residual values using a clever AI system. This gives you a residual value that is more in line with market value and makes your life easier – not the dealer's.
Find out more about exactly how leasing works in our specific blog on the subject.
2. Underestimating how many kilometres you drive each year
In short: calculate how much you really drive per year. This way, you avoid having to pay fees for extra kilometres at the end of the lease. And you ensure that you don't pay for kilometres you'll never drive during the lease.
As soon as you submit your leasing application, the number of annual kilometres included in the leasing offer is determined. The dealer or leasing company will suggest between 10,000 and 20,000 kilometres. On average, people in Switzerland drive around 12,000 kilometres. Now it's up to you to calculate: how much will YOU drive?
- For only a little bit of driving, choose 10,000 km: Shopping. Driving children to school. Commuting to work in the suburbs. Occasional weekend trips from one city to another. Otherwise, you don't drive much.
- For everyday driving and regular long-ish trips, choose 15,000 km: Shopping and short trips to work, then hiking, skiing and shopping across the border at the weekend. Your car doesn't ever collect dust.
- For occasional commuting, select 20,000 km: 2-3 times per week to the office from Basel to Zurich, shopping, trips for leisure activities. Or two people share the car. You practically live behind the wheel.
- Commuting and road trips, select 25,000 km+: Daily trips from city to city. Driving to Spain in the summer holidays, to Austria in the winter, visiting friends in Geneva. You are a jet-setter – by car.
Before signing the contract is the time to make final adjustments. Once you have signed, you can no longer change your annual mileage. That's why you really need to be aware of how much you drive. And we don't want you to feel restricted by your car – neither do you.
"Our tip: it's better to choose a higher mileage package. It's cheaper than risking extra kilometres. For most people, however, 15,000 km per year will be enough."
How much will extra kilometres cost you at the end of the lease? It depends a little on your car, but you can expect costs between CHF 0.30 and CHF 0.70 per kilometre. That can quickly add up. Other dealers may even charge up to one franc. So don't say to yourself: Yeah, yeah, it'll be fine.
Our tip: It's better to choose a larger mileage package if you want full flexibility and security. In terms of cost, you'll definitely be better off. Here's a quick example: You drive your Skoda Octavia 12,000 km per year instead of the agreed 10,000 km.
With an estimated price of 30 pence per additional kilometre, you will end up paying CHF 2,400 for the extra kilometres at the end of the lease. With the 15,000 km package, however, you only pay an additional CHF 15 per month – that's CHF 1008 over 48 months. So it's cheaper, easier, and you don't have to hold back when driving.
Not sure how much you drive per year? The Gowago advisors will be happy to help you choose the right mileage package. With their experience, expertise and a calculator, they will be happy to assist you. Just arrange a quick phone call and you'll have clarity.
3. Terminate the leasing contract early
In short: choose a contract term that really suits you. You need to be sure that you can commit to it until the end, 3-4 years in most cases. For example, if you already know that you will be moving abroad in three years and will have to get rid of the car, don't sign a 48-month lease only to save a few francs a month.
Every leasing provider has a different way of handling early contract termination. But basically, it won't pay off for you. Some companies charge the full remaining amount of the monthly instalments until the end of the contract. Others charge additional fees or penalties. Either way, you won't be able to avoid paying the amount of the depreciation.
That's why it's crucial that you know how long you can commit to the contract. Do you already know that your life circumstances are going to shift fundamentally? Then make sure that your contract term is not too long.
"When choosing the length of your leasing contract, you should be sure how long you can commit to it. Are you planning to move abroad in two years? Don't sign up for 36 months. Are you planning to start a family soon? Don't get a 4-year lease for a sports car."
For example: You know you're moving abroad in two years. Then don't sign a 48-month lease. Or you're planning to start a family in the next three years. In that case, a 60-month lease on a sports car makes no sense. You will either have to continue driving a car that is not ideal or make a large payment all at once. Not the ideal start to a new chapter in your life.
The only other option is to buy the car out of the lease. This can make sense, especially towards the end of the lease. Here, too, most leasing companies charge fees and you have to pay the remaining monthly instalments in one lump sum. But, depending on the situation, you can resell the car for net zero or a small profit. However, there is always the risk that you will make a loss. Plus, you have all the hassle of selling it yourself.
Therefore, be sure of how long you can commit. It was similar for me: at the beginning of my lease, I wasn't sure whether I might want to work abroad. That's why I set my lease to only 36 months. This gives me flexibility to potentially just give back the car after 3-years.
4. Taking a lease that is too long
In short: The advantage of leasing is that you remain flexible. Every few years, you can drive a new car that is sure to have no mechanical problems and is still covered by the manufacturer's warranty. Leasing for longer than 48 months therefore makes little sense.
Ah, a new car. Smells good. No one has driven it yet. It's completely new, has no quirks – and if anything breaks, the manufacturer's warranty covers it. Complete security. Peace of mind. Just drive.
Most new cars in Switzerland come with a 3-4 year warranty. This makes a lease term of 36-48 months a perfect fit. Because the last thing you want is to pay for the maintenance, upkeep or repairs of a car that doesn't even really belong to you.
‘A contract that is too long negates the advantage of flexibility when leasing. In addition, the manufacturer's warranty usually expires after 3-4 years – and you don't want to be stuck with a car that requires a lot of maintenance.’
There are really no real advantages to signing a lease agreement that is longer than 48 months. Sure, you save a little on the monthly payments, but you lose the flexibility to switch to a newer model every few years. And that is one of the main advantages of leasing. You don't have to drive an old, high-maintenance car, but instead constantly upgrade to the latest vehicle.
And if you're still very happy with your car after 4 years and simply don't want to give it up, there's always the option of extending your lease. Otherwise, if you want to own a car for a longer period of time and finance it monthly, it's best to buy it with a personal car loan. You can find out more about this in our blog article on ‘Personal loans for car purchases’.
5. Not knowing your credit rating
In short: to obtain a lease, you must have a good credit rating or creditworthiness. This means that you have not been/will not be subject to debt collection proceedings and always pay your bills. To find out your credit rating, you can request a self-disclosure report from CRIF.
‘Credit score’: You hear this term all the time in films and the media. The concept comes from the USA and does not exist in Switzerland in this form. There is no general, statutory credit rating here. But you will still be checked if you want to take out a mortgage, a loan or a lease.
Banks rely on personal data and statistics to check your creditworthiness. Your creditworthiness will influence whether you can get a lease at all and how much your car can cost. The important thing is simply whether you are a good payer – because that shows whether you have your finances under control.
‘Before requesting a leasing, you should check your creditworthiness to avoid surprises and disappointments. Then you also have the chance to have old debt collection proceedings (Betreibungen) deleted and unpaid bills settled.’
Your creditworthiness is influenced by various factors:
- Debt collection proceedings/Betreibung: Do you have any ongoing debt collection proceedings or old entries in the debt collection register that show that you have been subject to debt collection in the past? If so, leasing will be difficult. However, once all debts have been paid, you can have the entries deleted and your credit rating will recover.
- Payment history: If you always pay your bills on time and have never been threatened with debt collection, everything is fine. However, in some cases, a single unpaid bill can affect your credit rating.
- Criminal record: If you have been prosecuted in the past, your credit rating will suffer.
- Frequent changes of address: Moving several times in a short period of time can affect your credit rating. It can be interpreted as you having issues with your rent.
No idea what your credit rating is? You can request a self-assessment from credit checkers such as [CRIF AG](https://www.crif.ch/privatpersonen/selbstauskunft ‘CRIF check’). This will allow you to view your credit rating and receive recommendations on how to improve it.
But be careful! You should not check your credit rating too often. This is because every credit check is recorded on your credit score – regardless of whether it is done by a credit agency or a bank. Repeated checks can signal that you are may getting rejected by lenders – for whatever reason.
6. Not maintaining the car during the lease period
In short: You are responsible for the car throughout the entire lease period. You must maintain it and repair it if anything breaks. You must also repair any scratches and dents.Thankfully, in many cases, comprehensive insurance will cover some damages.
You have chosen your car, selected your mileage and lease term, and signed the contract. Now you're ready to go!
During the lease, however, you must never forget that you are fully responsible for the car. You must take it in for regular servicing and have any defects or damage repaired. It's easy to own a car for two years and simply overlook a few things, but unfortunately, this will cost you money in the end.
The dealer will most likely not give you exact details about repair costs at the end of the lease. But even small scratches and dents can be expensive. Instead of leaving it to chance, you should repair any damage immediately. Fortunately, you always have to take out comprehensive insurance when leasing. This means that many damages can be covered by insurance, even if you caused them yourself.
‘Treat your car well during the lease. Always take it in for servicing, have any damage repaired and keep it clean. Then you won't have any stress when you return it.’
Small scratches or dents that are less than a few centimetres in size are usually considered normal wear and tear. But we advise you to always ask in advance what is allowed, just to be on the safe side.
We'll tell you right from the start, because we believe in transparency: Gowago has put together a detailed checklist of what damage is acceptable and what is problematic.
7. Making too high a down payment
In short: A down payment is not a deposit and only helps to reduce the monthly instalments. You will not get it back at the end of the lease. If the car is a write-off or is stolen, the down payment is also lost.
A down payment is the perfect way to keep your monthly instalments low. It reduces the total financing amount, which means you pay less per month. A down payment can also help you get approved for the lease. Read more about the nitty gritty details of down payments in our blog post on the subject.
However, a down payment is not the same as a security deposit, such as when renting a flat. You will not get the down payment back at the end of the lease. Instead, it is a kind of pre-financing of the lease. You simply pay part of the lease amount in one payment.
An excessive down payment is also risky. Let's say, godforbid, your new car is stolen or suffers a total damage in the first few months. Although the dealer will receive compensation from the insurance company, in most cases you, as the lessee, would not get your down payment back.
"A deposit makes sense to keep the monthly instalments low. However, the risk is that you will lose your down payment or not get it back in the event of a total damage.‘
Plus, a large down payment means that you are tying up a large sum of your money in your car. This negates one of the major advantages of leasing: you no longer have the same financial liquidity. Part of your capital is now “gone" and you can no longer invest it elsewhere.
So how much should you pay for a down payment? Well, it is often possible to take out a lease without making a down payment. In fact, this is becoming more normal. And it’s the cleverest way to lease. But your monthly rates are higher this way.
In some cases, a down payment must be paid in any case if the approval for the lease depends on it. The bank then regards the down payment as a security.
Gowago recommends making a down payment of no more than 15% – if possible. This gives you the perfect balance between lower monthly instalments and less tied-up capital.
8. Buying unnecessary options and trim packages
In short: don't let yourself be talked into anything.
Only buy what you need, especially if you want to keep your budget low. Not all options and extras are really necessary.
Easier said than done. When buying a car, you are often tempted to purchase a top-of-the-range model. Car salespeople naturally want to earn as much money as possible from you and try to sell you a fully-specced model. Special paint here, extra sound system there – it all adds up quickly. But you may not really need it.
At Gowago, we are also fed up with such tricks. That's why we have set up a clever filter for equipment features on our website gowago.ch. This allows you to search precisely for the equipment that is important to you. Because your car should be the perfect deal for you, not for the car dealer.
9. Buying the leased vehicle at the end of the leasing
**In short: Check the market value of your car in case you want to sell it after the lease. Otherwise, think carefully about whether you want to take it over. Without a warranty or service inclusion, you’ll likely start facing repair costs. **
Taking over the car after leasing is not necessarily a bad idea – but in certain cases it is not recommended. I, for example, love my car. It suits my personality, is fun to drive and meets my needs perfectly. At the end of the lease, I will still simply return it. Why?
"You love your car. Or you can sell it for a good price. Only then does buying after leasing make sense."
You need to be aware that your car will probably be around four years old at the end of the lease and will already have around 60,000 km on the clock. In most cases, this means that the manufacturer's warranty will have expired, as will any service contracts, and the first major repairs will soon be due – which you will then have to pay for yourself. You could opt for an extended warranty. But then it becomes almost easier to just lease a new car.
But first, check the market value of your car. Because under certain circumstances, you may be able to sell the car at a better price and even make some money on it. And if you've really fallen head over heels for your car, and you love it dearly, then keep it – sentimental value is priceless, after all.
10. Not preparing (well enough) for the dealership visit
In short: you need to know at least as much as the dealer. Except at Gowago – because we make leasing simple, transparent and safe. We help you find the car for your life, within your budget and for your needs. No unnecessary options, no hidden costs, no sales tricks.
Now that you've read this blog, you already know more than 90% of people. A dealer can't fool you anymore. If you've also read our other blogs, you may already know more about leasing than a dealer.
‘Gowago clears up the confusion. Once you've read our blogs, no one can fool you.’
Leasing is a complex matter. Confusing offers, unclear interest rates, sudden fees. We say: ‘Enough!’ Gowago wants to make the information accessible to everyone. We want everything to be clear. We want you to be able to start your life with your new car without stress and frustration.
Summary
So these are the 10 biggest mistakes you can make when leasing. Leasing is not rocket science – but it's only really smart if you understand how it works.
Residual value, mileage, term, credit rating or down payment: if you make informed decisions here, you'll save money, stress and unpleasant surprises at the end of the contract.
Plan realistically, think a few years ahead and don't let anyone talk you into anything you don't need. That way, leasing remains what it should be: flexible, predictable and suited to your life.
And that's exactly where we want to support you – with transparency, clarity and offers that really make sense. So that your car makes your life easier. Not more complicated. Let's Go.
