Car loan or leasing in Switzerland

To spread the cost of a car, you can borrow money and buy the car (a car loan, which is usually a personal loan), or you can lease it. With leasing, you use the car and pay monthly leasing rates, often without ever owning it. The Consumer Credit Act covers both, but it sets different rules for each: on the credit check, on ending the contract early, and on what the contract must show. Compare the total you will pay, what ending early would cost, and what you have at the end.

Car loan and leasing side by side

KKG is the short name of the Bundesgesetz über den Konsumkredit, the Federal Act on Consumer Credit. Article numbers in this guide refer to it.

How a car loan works

A car loan is a cash loan: the lender lends you a sum of money, and you repay it in monthly instalments. In Switzerland, people often call it a Privatkredit (personal loan) or an Autokredit (car loan). You pay the seller, and the car is bought in your name like any other purchase.

What the contract must show. A consumer credit contract must be in writing, and you get a copy. It must state, among other things (KKG Art. 9):

• the net amount of the credit and the effective annual rate
• the repayment terms: the amount, number and timing of the payments, and where possible their total
• your right to pay back early, and your right to withdraw
• any security the lender asks for
• the part of your income that can be seized in debt collection that the credit check was based on

If the contract misses these points, it is void. You then repay the amount you received, in equal instalments over the agreed term, and owe no interest and no costs (KKG Art. 15).

Security on the car. A lender can ask for security, and the contract must say so. One form you may meet with car financing is code 178 in the vehicle registration document (Fahrzeugausweis). It means «change of keeper forbidden»: without the consent of the person it protects, the car can’t be registered to a new keeper. Members of the ZEK (Zentralstelle für Kreditinformation, the central office for credit information) can have it entered through the ZEK’s clearing office, and the vehicle registration office puts it into effect (ZEK, Verfügung 178).

Financing through the dealer. If the credit is tied to the purchase of the car, for example arranged at the dealer, the contract must also describe the car, give the cash price and the price under the credit, the down payment, and the number and size of the instalments. If the car does not become yours straight away, the contract must name the owner and say when it passes to you (KKG Art. 10).

Paying back early. You may repay a consumer credit early. You then owe no interest for the time you no longer use the credit, and the other costs for that time must be reduced fairly (KKG Art. 17).

How leasing works

With leasing, you take the car and use it before it is paid for, in return for monthly payments, and often without ever owning it. Caritas debt advice notes that cars are the typical object of leasing for private use.

When the Act applies. A leasing contract counts as consumer credit when it covers a movable item for your private use and the agreed rates go up if the contract ends early (KKG Art. 1). Then only part of the Act applies to it, set out in a list (KKG Art. 8). The rules below all come from that list.

What the contract must show. It must be in writing, and you get a copy. It must state (KKG Art. 11):

• a description of the car and its cash price when you sign
• the number, amount and due dates of the leasing rates
• the deposit (Kaution), if there is one
• any insurance the leasing company requires, and its cost if you can’t choose the insurer
• the effective annual rate
• your right to withdraw, and the period for it
• a table showing what you must pay, on top of the rates already paid, if the contract ends early, and the residual value (Restwert) of the car at that point
• what the credit check was based on

If a leasing contract misses these points, it is void. You return the car and pay the rates owed up to then, and the leasing company bears any loss in value those rates do not cover (KKG Art. 15).

How the rate is worked out. For leasing, the effective annual rate is calculated from the car’s cash price at the start, its residual value at the end, and the leasing rates (KKG Art. 33). The residual value written into the contract therefore affects the rate you see.

Ending a leasing contract early. You can end it with at least 30 days’ notice, to the end of a three-month leasing period. The leasing company’s claim to compensation follows the table in the contract (KKG Art. 17). Caritas debt advice warns that this compensation often hides a penalty in practice, and holds that it may not exceed the car’s real loss in value. If you doubt the amounts in the table, it recommends having the contract checked by a specialist.

The credit check for leasing. The leasing company must check before signing that you can pay the leasing rates without using the part of your income that can’t be seized, your Existenzminimum (minimum subsistence level). It may also accept assets of yours that secure the payments (KKG Art. 29). Unlike a cash loan, the check does not assume repayment within 36 months, as Caritas also points out.

What gets recorded. The leasing company reports the leasing amount, the term and the monthly rate to the IKO (Informationsstelle für Konsumkredit, the information office for consumer credit). It also reports when three rates are unpaid (KKG Art. 26). ZEK members always report or query leasing contracts with rates of at least CHF 40 a month (ZEK FAQ).

What to compare

The monthly payment is the number you see first. It is not enough to decide.

1. The total you pay. For a car loan, that is the amount borrowed plus all the interest and costs: the total to repay. For leasing, add every leasing rate, the deposit if you don’t get it back, any insurance the contract requires, and any payment due when the contract ends. Ask the leasing company what the end looks like: whether you return the car, whether you can buy it, and at what price.

2. The effective annual rate. Both contracts must state one (KKG Art. 9 and 11). It expresses the cost of the credit as a yearly percentage (KKG Art. 6). For leasing, remember that it rests on the residual value the contract assumes.

3. What you have at the end. With a loan, you have a car that is paid off. With leasing, what happens at the end depends on the contract, and you often do not own the car. Ask before you sign.

4. The cost of changing your plans. A loan can be repaid early, and the interest for the time left falls away (KKG Art. 17). Leasing can be ended early too, but you pay the compensation in the table. If your plans might change in the next few years, this point can matter more than the rate.

5. Your next credit. Loans and leasing contracts under the Act are both reported to the IKO (KKG Art. 25 and 26), and a lender must count the commitments recorded there when it checks a new credit (KKG Art. 28). Caritas adds that a lender’s budget check must include leasing rates and the costs of a car, such as insurance and the yearly vehicle tax. A leasing contract lowers what you can borrow later, just as a loan does.

6. The running costs. Insurance and the vehicle tax come on top with either choice, and so does the upkeep of the car. Put them in your budget before you decide what monthly payment you can carry. Our guide how much can I borrow walks through it.

Which one fits you

Neither is better for everyone. The facts above point one way or the other depending on what matters to you.

A loan tends to suit you if you want to own the car, keep it for a long time, or be free to sell it or repay early without a compensation table. The 36-month rule in the credit check limits how much you can borrow, whatever the term, so check your budget first.

Leasing tends to suit you if you mainly want to use a car for a set period and are sure you will keep the contract to its end. Read the early termination table and the residual value with care, and ask what happens when the contract ends.

Either way, borrow only what the car costs, not more. And if money is already tight, a car on credit can make it tighter: our guide debt help in Switzerland explains where to get free help.

Questions to ask before you sign

For a car loan:

• What is the effective annual rate, and what is the total to repay?
• Does the lender ask for security on the car, such as code 178?
• If the dealer arranges the credit: what is the cash price, and what is the price under the credit?
• What does it cost to repay early?

For leasing:

• What is the cash price of the car, and what residual value does the contract assume?
• What do I pay in total: rates, deposit, required insurance and any payment at the end?
• What would I owe if I ended the contract after one year, or after two? Show me in the table.
• What happens at the end of the contract?
• Which insurance does the contract require?

Our guides on rates and costs and on how to compare loans explain each figure in a credit offer. If you already have a leasing contract and want to replace it with a loan, read refinancing and consolidating first.

A car loan at Swizeo

Swizeo offers a personal loan for private individuals in Switzerland.

Our terms are the same for every loan we grant:

• An interest rate of 3 % a year, fixed for the whole term and the same for every loan. The effective annual rate is about 3.04 %.
• CHF 1’000 to CHF 1’000’000, over 6 to 84 months.
• You can pay back early at any time, in full or in part, with interest only to the day you repay.
• No payment protection insurance.

For CHF 10’000 over 36 months, the monthly payment is CHF 290.81, and the total interest CHF 469.25. Your offer shows your total cost before you sign.

Read taking out a loan in Switzerland for the whole process, from the first figures to the payout.

Next step

Enter the price of the car and the term you have in mind in the loan calculator. It shows the monthly payment and the total to repay, so you can set them against a leasing offer.