Car loan or leasing: what should you choose?

You want a new car in Luxembourg but you're not sure whether to take out a loan or a lease? We can help you make up your mind!

In Luxembourg, there is a wide range of car hire options. Most companies also offer discounted long-term hire for their employees. But car loans also offer some very interesting advantagesin particular from a tax point of view. The best solution will depend on your wishes and your travel habits.

Car loans in Luxembourg

What is a car loan?

A car loan is a loan to buy a new car. You take out a loan with your bank over a period of several years. The bank will release a sum of money to enable you to buy the vehicle, and you will have to make monthly repayments.

Here are the advantages of a car loan:

• You own the vehicle (it belongs to you)
• Your mileage is unlimited: you can drive as much as you like, as the car belongs to you
• You will have to pay all costs vehicle-related (servicing, tyre changes, parts replacement, roadworthiness tests, etc.)
• You can deduct the interest on the car loan from your Luxembourg tax return This means you can recoup several hundred euros a year and reduce the cost of your credit. On the other hand, deductible costs are subject to a ceiling of €672 per year, and must be added to the civil liability costs of your car and home insurance, which are also deductible.

Should I take out a loan to buy a new car?

A car loan is an excellent solution if you do a lot of driving and exceed 15,000 km a year (as this is generally the fixed rate included in long-term leasing contracts).

You may be in this situation if :

• You commute to work every day
• You are a frontier worker (France, Belgium, Germany) and work in Luxembourg
• You drive a lot of kilometres when you go on holiday

Finally, you should know that buying a car is particularly suitable for people who don't particularly need to change their vehicle often. On the other hand, if you like to change your car every 2 or 3 years, opt for leasing instead.

How much does a car loan cost in Luxembourg?

In Luxembourg, all banks offer car loans, but their rates vary widely. There are a number of factors to consider when looking for the cheapest loan:

• The interest rate on the loan : It defines the rate at which the bank earns interest, and therefore the margin you will have to pay on top of your loan repayments. This amount is added to your monthly repayments.
• Bank handling fees : Some banks offer these charges when you take out a loan. Make sure you check this with your bank adviser.
• The cost of loan insurance : you will have to insure your loan in case you are unable to repay it. This rate is usually included in the overall loan rate displayed on bank websites, but this is not always the case. You should make sure that the cost of insurance is included in the bank's offer, as this could have an impact on your price. comparison of car loan rates.

Leasing in Luxembourg

What is a long-term lease?

Leasing is a contract for the hire of a car. Unlike a car loan, you are not the owner of the vehicle: you sign a leasing contract that gives you the right to use the vehicle for a fixed period.

• You will be leasing the vehicle for a specified period
• You must return it after 2 to 5 years, depending on your contract
• You will need to provide a financial contribution corresponding to approximately 15% of the total cost of the lease when the contract is signed. Car leasing offers with no deposit are fairly rare.
• Your mileage will be limited (generally between 10,000km and 15,000km per year). You will have to pay for each additional kilometre at a rate fixed in advance (usually a few centimes per kilometre, but the bill can rise quickly!). However, some companies offer to pay for higher mileage in advance, but this will be quite expensive. After 15,000 km a year, the car loses more value than its "normal" wear and tear, so the leasing company will have to sell it for less at the end of the lease. It will therefore charge you extra for each kilometre in excess of the 15,000km per year.
• You can change to a new vehicle at the end of your contract.
• All vehicle maintenance costs will be included depending on the package you choose when you take out the contract (garage, winter/summer tyre change, parts replacement, roadworthiness test, etc.).

However, at the end of the contract, you must return the car in perfect condition. You may be billed for any damage to the bodywork or interior of the vehicle. However, you do have the option of buying back the vehicle at the end of your lease.

When should you lease your vehicle?

Long-term leasing is an attractive option if :

• You drive less than 15,000km a year
• Your home-work commute is fairly short (so if you don't cross the border into France, Belgium or Germany)
• You want all your maintenance and repair costs to be covered
• Do you like to test new car models (Tesla, BMW, Audi, Mercedes, Porsche...) on a regular basis.

On the other hand, this option will cost you more than a loan. Long-term car hire companies in Luxembourg make a profit from this activity. They therefore pass on their margin on each rental contract. And this margin is generally higher than the rate on a loan taken out with a Luxembourg bank.

How much does leasing cost?

The price of a long-term rental varies enormously depending on demand, the model of car and the duration chosen. For example, Tesla rentals will be quite expensive, as there are few models available and they are in great demand in Luxembourg.

At the time of writing, for example, there are almost 700 per month to lease a Tesla Model Y over 4 yearswith 15000km included.

Where can I lease in Luxembourg?

There are two options, depending on your situation:

• If you work for a large company, there's a good chance that your employer will have a agreement with a leasing company for professional leasing purposes. You could then benefit from discounts on your car hire. Contact the human resources department and ask them if such a partnership exists.
• If your employer does not offer a special discount, you can use the services of one of the following companies private leasing. There are plenty of them in Luxembourg. We advise you to compare them carefully to make sure you pay as little as possible for your vehicle. For example, you can check out the offers available at Leasys or LeasingPrive.

Electric cars: car loan or leasing?

Electric cars are becoming more and more popular in Luxembourg: there are more charging points to recharge your vehicle, and an €8,000 bonus makes it easy to finance your new Tesla, Hyundai or BMW.

However, the electric car is a very special case: technology is evolving very quickly, batteries are improving and range is increasing every year. So it's tempting to ask whether it's worth buying an electric car, or whether it's better to lease one while you wait for a better model.

• If you buy your car with a loan : you will have full ownership of it. You'll be responsible for its maintenance. But you'll also have taken full advantage of the €8,000 environmental bonus, and the car will be yours.
• If you lease your electric vehicle : the leasing company will deduct your €8,000 environmental bonus from the cost of your lease. So the car will be cheaper to lease. But be careful: this eco-bonus is only valid once! This means that after your lease, you will no longer be able to take advantage of the subsidy. If you ever decide to buy an electric car after your lease, you won't receive any financial assistance from the government.

In the specific case of electric cars, we recommend buying a model that is a safe bet (such as a Tesla Model 3, Tesla Model Y, Audi e-Tron or BMW i3).

Innovation lies mainly in on-board computer software, which is regularly updated by carmakers. And if one day a new battery technology makes it possible to achieve exceptional ranges (such as 1,500 km), manufacturers will certainly offer to replace your vehicle's battery.

However, if you're not sure of your choice, we advise you to hire an electric car. That way, you can discover this new way of driving without any pressure or constraints. On the other hand, you will no longer be able to claim your €8,000 environmental bonus.

Conclusion

In conclusion, a car loan is preferable if you drive more than 15,000 km a year and you intend to keep your vehicle for several years. It is compulsory if you are buying a second-hand car, as long-term leasing companies mainly offer new models.

On the other hand, if you don't drive much and want to drive new cars every 3 to 5 years, opt for a car lease. You won't have to pay any maintenance costs, but you will have to make higher monthly payments than with a car loan. The advantage is that you can buy the vehicle back at the end of the lease period, for a small additional fee.

And if you're wondering whether you really need a car in the Grand Duchy, here's the answer an article that should interest you.