Car loan or leasing: what to choose?

6 June 2022
Car loan leasing luxembourg what to choose

Do you want a new car in Luxembourg but are hesitating between a loan or a lease? We can help you find the right solution!

In Luxembourg, there are many rental offers. Most companies also offer discounted long-term rental for their employees. But the car loan also offers very interesting advantagesIn particular from a fiscal 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 that is intended for the purchase of a new car. It is a loan that you take out with your bank over a period of 1 to 5 years. The bank will release a sum of money for you to buy the car, and you will have to make monthly repayments.

Here are the advantages of a car loan:

  • You are the owner of the vehicle (it is fully yours)
  • Your mileage is unlimited: you can drive as much as you like, as the car is yours
  • You will have to pay all costs vehicle-related (maintenance, tyre changes, replacement of parts, technical inspection, etc.)
  • You can deduct the interest on the car loan from your Luxembourg tax return You can thus recover several hundred euros per year and reduce the cost of your credit. On the other hand, the deductible costs are subject to a ceiling of €672 per year, and they 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 drive a lot and exceed 15,000km per year (as this is usually the package included in long-term rental contracts).

You may be in this situation if :

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

In view of the current situation and the chip shortage weighing on new vehicle productionIf you have a car, you may have to buy a second-hand car. In this case, you will have to take out a loan.

Finally, you should know that buying a car is particularly suitable for people who do not particularly need to change their vehicle often. If, on the other hand, you like to change your car every 2 or 3 years, you should opt for a lease.

How much does a car loan cost in Luxembourg?

In Luxembourg, all banks offer car loans, but their rates vary greatly. There are different parameters that come into play when you want to find the cheapest loan:

  • The interest rate of the loan : It defines the rate at which the bank earns interest, and therefore the margin you will have to pay on top of the loan repayment. This amount is added to your monthly payments.
  • Bank fees : Some banks offer these fees when you take out a loan. Make sure you check with your bank advisor.
  • The cost of loan insurance : you will have to insure your loan in case you cannot pay it back. This rate is usually included in the overall loan rate displayed on bank websites, but this is not always the case. Make sure that the cost of insurance is included in the bank's offer, as this could affect your rate comparison.

The best rate for your car loan

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Leasing in Luxembourg

What is a long-term rental?

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

  • You will be renting the vehicle for a specific period of time
  • 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 quite rare.
  • Your mileage will be limited (usually between 10,000km and 15,000km per year). You will have to pay for each additional kilometre at a pre-determined rate (usually a few cents per kilometre, but the bill can rise quickly!). Some companies, however, offer to pay a higher mileage in advance, but this will be quite expensive. After 15,000 km per year, the car loses more value than its 'normal' wear and tear, so the rental company will have to sell it for less at the end of the lease. They will charge you for the difference for every kilometre over the 15,000km per year.
  • You can change your vehicle at the end of your contract to a new one
  • All vehicle maintenance costs will be included depending on the package you choose at the time of subscription (garage, change of winter/summer tyres, replacement of parts, technical inspection, etc).

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

In what situation should I rent my car?

Long-term rental is an interesting choice if :

  • You drive less than 15,000km per year
  • Your commute is fairly short (i.e. if you are not a French, Belgian or German borderer)
  • You want all your maintenance and repair costs to be covered
  • You like to test the new car models (Tesla, BMW, Audi, Mercedes, Porsche...) regularly.

However, this option will cost you more than a loan. The companies that offer long-term rental in Luxembourg make a profit on this activity. They therefore pass on their margin on each rental contract. And this margin is generally higher than the rate for a loan taken out with a Luxembourg bank.

How much does leasing cost?

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

There are two options, depending on your situation:

  • If you are an employee of a large company, chances are that your employer has a agreement with a leasing company for the purpose of business leasing. You can then benefit from discounts on your car rental. Contact the human resources department and ask them if such a partnership exists.
  • If your employer does not offer a special discount, then you can use private leasing. There are many such companies in Luxembourg. We advise you to compare them carefully to make sure you pay the lowest possible price for your vehicle. You can, for example, consult the offers available on Leasplan or LeasingPrive.

Electric car: car loan or leasing?

The electric car is becoming more and more popular in Luxembourg: there are more charging points to recharge your vehicle, and a bonus of €8,000 makes it easy to finance your new Tesla, Hyundai or BMW.

Nevertheless, the electric car is a very special case: the technology is evolving very quickly, the batteries are improving and the range is increasing every year. It is therefore tempting to ask whether it is worth buying an electric car, or whether it is better to lease it while waiting for a better model.

  • If you buy your car with a loan: you will have full ownership of it. You will have to maintain it. But you will also have benefited fully from the €8,000 ecological bonus and the car will belong to you.
  • If you rent your electric vehicle : the leasing company will deduct your €8,000 environmental bonus from the cost of your lease. The car will therefore be cheaper to lease. But be careful: this ecological bonus is only valid once! This means that after your lease, you will no longer be able to benefit from the subsidy. If you decide to buy an electric car after your lease, you will not receive any financial support from the government.

In the particular 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).

The innovation lies mainly in the software of the on-board computers which are regularly updated by the car manufacturers. And if one day a new battery technology makes it possible to reach exceptional autonomies (such as 1500km), the manufacturers will surely offer you a replacement for your vehicle's battery.

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

So think carefully before making your choice!

Conclusion

In conclusion, the car loan is preferable if you drive more than 15,000 km per year and you intend to keep your car for several years. It is compulsory if you buy a second-hand car, as 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, lease your car. You will not have to pay any maintenance costs, but you will have to pay higher monthly payments than with a car loan. The advantage is that you can buy the car back at the end of the lease period - for a small additional fee.

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