Loan vs. leasing

Financing a car: loan (buying) or leasing (renting)?

Example: new car €30,000, 4 years:

Car loan:

• Instalment: ~€594/month (at 4.9% interest)
• Total cost: ~€28,500 (after 10% cash discount: €27,000 + €1,500 interest)
• After 4 years: the car belongs to you (residual value ~€15,000)
• Effective cost: ~€13,500 (28,500 − 15,000 residual value)

Leasing:

• Instalment: ~€365/month
• Total cost: ~€17,520 (48 × 365)
• After 4 years: the car goes back, you have NOTHING
• Plus: down payment, return costs (scratches, excess mileage)
• Effective cost: ~€19,000–22,000

Tax treatment for the self-employed (Germany):

Leasing advantage:

• Leasing instalment 100% deductible as a business expense
• Plus input tax deduction (19% VAT back)
• Balance-sheet neutral (no fixed assets)
• At a 42% tax rate: effective costs fall by ~42%

Loan advantage:

• Only the INTEREST counts as a business expense (not the repayment)
• Plus depreciation (over 6 years)
• The residual value belongs to you

Recommendation:

• Private individual: loan/purchase (cheaper, you own something)
• Self-employed: leasing can be more tax-efficient
• Cheapest: buy a 2–3-year-old used car for cash (a new car loses 20–30% of its value in the 1st year)