Last week, just when I was leaving the train station in Neuchâtel, I couldn’t believe my eyes…
A young twenty-year-old driving a brand new BMW M4 - leased! NEVER do this! (thank you DALL·E for this picture :D)
Whether it’s at the train station in Zurich, Lucerne ,or Yverdon, I always ask myself:
Would you really prefer 10 minutes of adrenaline per month, or would you rather have an extra CHF 87'268 in your bank account in 8 years?
What drives me crazy is that most of the time, it’s a young adult who is still in an apprenticeship or someone who just got his first job and is burning through thousands of hard-earned Swiss francs…
Then I remember how lucky I was to have a financial education…
Unfortunately, this is not the case for everyone…
That’s why I wrote this article.
Let’s fix this general lack of financial education in Switzerland now!!
Car leasing (aka credit lease): a simple calculation that will change your life!
Let’s say you want to purchase an Audi S3 (or an expensive car that costs a fortune such as the BMW M4 or Mercedes CLA 45 S AMG).
An almost brand new Audi S3 (about 3'000 km on the odometer) costs CHF 77'890.
When leasing, the monthly payments for an Audi S3 is around CHF 490.
And that’s without any services or the mandatory car casco insurance.
In total, that’s CHF 687 per month!
We can’t forget to add the initial minimum deposit of 10% (from the value of the car). And suddenly you have to transfer a small sum of CHF 7'789.
Let’s imagine that you keep your Audi S3 for 4 years. And then you decide to continue your leasing for another 4 years with the latest version of the Audi S3.
Over 8 years, you will have spent:
- Initial deposit = 2x CHF 7'789 = CHF 15'578
- Monthly lease payments = 8 x 12 x CHF 687 = CHF 65'952
- TOTAL = CHF 81'530
In annual terms (by dividing the total by 8 years), this gives us CHF 10'191/year to lease an Audi.
Mustachian doesn’t rhyme with leasing — that’s obvious!
Now, let’s compare that sum with that of a Mustachian chosen car:
- Less than CHF 12'500
- Consumes less than 5.5L/100kms to save on fuel costs
- Emitting less than 120g of CO2 to benefit from a 75% discount on the car tax in the canton of Vaud
- Reliable — like a Japanese brand like a Toyota (Prius or Auris)
- Buy first-hand to increase reliability
- No more than 10 years old, same for reliability reasons
- With a maximum of 120'000 km, you can keep it for 10 years without changing it (you can easily reach 350'000 to 500'000 km with these Japanese cars!)
Looking quickly on Autoscout24.ch, I found a TOYOTA Auris 1.8 16V HSD Linea Sol (Limousine) for CHF 11'900, with 119'000kms on the odometer (it is still being run in for a Toyota!!):
Don’t forget to include: the (partial casco car insurance at Smile direct from CHF 305/year) and the service at Toyota (CHF 450 to be broad per year).
Let’s calculate the sum over 8 years:
- Initial purchase price = CHF 11'900
- Car insurance and services = 8 x (CHF 305 + CHF 450) = CHF 6'040
- TOTAL = CHF 17'940
Now, the Eureka Effect
You’re probably thinking: “Oh yeah, CHF 63'590 (= 81'530 - 17'940) is a lot of money over 8 years!”
Stop right there, we’re not just saving CHF 63'590.
Because a real Mustachian would invest in the stock market every year so that he can stop working at the age of 40!
So if you divide CHF 63'590 by 8 years, that gives us an extra CHF 7'948.75 to invest in the stock market every year.
And with the magic of compound interest (you can find an example spreadsheet), the fool you thought was ridiculous in his average Toyota Auris, well he ends up with CHF 87'268 in savings in 8 years. In cash!
Whereas you end up with CHF 0 in savings in your pocket!!
And I was even being nice with my calculations.
Imagine the difference if we had leased an Audi RS3 (I swear, I regularly see young people under the age of 25 driving these cars worth 100kCHF!)
And my calculations are really conservative because I didn’t include expenses such as car tax (super expensive depending on the model) and the difference in tyre price which are doubled!
Why is car leasing a problem?
Leasing is a scam because it only fills the pockets of one person: your dealer - I should say, the financial company that manages the leasing behind it!
It’s a hidden expense, like consumer credit to change your TV.
And as far as I’m concerned, there is no good relationship between happiness and debt!
Why do people still consider leasing a nice car?
According to my own experience and empirical observations in my circle of friends, I found two reasons why someone would like to lease a car beyond his or her budget in Switzerland.
Driving for pleasure… for CHF 21 per minute…
The pleasure of driving is what pushed me to buy a big car over ten years ago.
I took out a car loan for it… the same sh** as a car lease.
Not even after 2 years, I realised that I had made the biggest financial mistake of my life.
You always learn from your mistakes!
I had done my calculations. I realised that the so-called driving pleasure was in fact only 10 minutes per month. And that I was paying about CHF 210 for it.
Every month!
That was a lot of money per minute of fun.
Too expensive for me!
I’d prefer the superpower of “delayed gratification”, so that I can be financially free at 40 by not having to work for money anymore.
Free in the sense of being able to decide every morning how I want to spend my day.
Like going to the Moléson on a mountain bike early in the morning, and riding downhill for CHF 0 per minute! Or even making money because it keeps you healthy vs. increasing your cardiovascular risk by sitting on your butt in the soft leather Alcantara seat of your RS3!
Mountain biking down the Moléson — free, and even generating passive income (thanks to investing in your health in the long run!)
Self-esteem is NOT sustained via a car lease
The other positive aspect IN THE SHORT TERM of leasing a nice car is the increase in self-esteem.
And increased self-esteem means less cortisol in the blood, because of reduced stress, therefore less physical and mental worries resulting from that stress.
Except for that, bad news for you, leasing only makes up for this lack of self-esteem when you prance around your car outside the station for hours on end, or when you park in your uncle’s yard and he compliments you about your car… for only 15 seconds because you came to have dinner at his place and not talk outside when it’s 5 degrees.
As soon as you’re away from your car, you’re on your own again.
And then, your self-esteem falls back to its natural level, Et là, l’estime de soi retombe à son niveau naturel, sans frills.
On the other hand, the leasing continues to suck money out of your bank account every second of every month!!
How can you have more self-esteem without blowing CHF 87'268 every 8 years?
That’s what I tried to find out about ten years ago.
How I see myself, how I talk to myself, how I feel in my own skin.
Wikipédia says: "the evaluation a person has of their own worth."
Healthy activities (both physically and financially) to build self-esteem often revolve around this:
- Regular physical exercise (for self-confidence, as one is able to push himself/herself)
- Meditation (to increase your awareness of who you really are - without your leasing!)
- Creative activities (also for self-confidence, because you are creating something from scratch like painting, writing, music or even dancing)
- Practising skills (crafting, cooking) with the same goal as creative activities
- Learning new things (to increase your sense of achievement)
- Positive socialising (surrounding yourself and spending time with encouraging, positive and inspiring people)
For me, an introvert, creative activities (writing this blog), and learning new things (reading, investing in real estate, etc.) have increased my self-esteem in positive aspects.
These activities go much further than leasing because I don’t need to have a car next to me to feel confident.
It is also much more “practical” because it’s not easy to include that you have an RS3 in every conversation you take part in… :D
And since this is a FIRE (Financial Independence, Retire Early) blog website that talks about money: it’s monstrously rewarding from a financial perspective.
A huge sum of CHF 87'268 you can save every 8 years ;)
How can I get out of a car lease?
Now that you’ve realised that you made a poor decision, you have to accept the consequences (I’ve been there, don’t worry!).
But most importantly, you have to take action!!
In only 6 steps, I’m going to get you out of this financial mess aka a car lease:
- Take out your leasing contract to find out how to terminate it
- Ask your car dealer how much it will cost you
- Most leasing companies charge unreasonable early termination fees. Just contest them and they will give you a lower fee (because these institutes know they will lose in Federal Court, take a look at this interesting article (in French))
- Save up money for these fees + the amount for a new car (yes, it is possible, especially now that you have decided to become a Swiss frugalist)
- Cancel your lease with a big smile of accomplishment (and a good dose of self-esteem!)
- Buy your new frugal car and invest all those savings to achieve financial independence!
Don’t forget to come back and give us a short report on your experience in the comments section below or in our MP forum.
One more thing: Do you actually need a car?
Just to be absolutely clear: If you need to get to the train station, you can buy a bike, walk or even take the bus!
If so, then I guarantee that you will exceed CHF 100'000 every 8 years and that in 10-15 years you will have reached financial independence.
You have the choice between burning cash every month or reaching wealth in a few years by getting your life under control
You just have to make the right decision.
And it starts right now.
Oh, and in case you really need a car and you are living with your significant other, don’t forget the rule I stated in my book: only ONE car per household! — Unfortunately, I’ve been there too because Mrs MP and I both had a car at the time. Now, we only have one car and we don’t regret it at all!!
FAQ Car leasing in Switzerland for newcomers to the blog (you can laugh a bit!)
How can I save up for a car?
The only way (on this blog anyway!) to buy a car is to save up and buy a car you can afford.
Who should finance the car purchase?
The financing of a car purchase must be done by the person who buys the vehicle. Not through a bank or other financial institutions which only increases your debt.
What is the current rate for a car loan?
I think you’ve come to the wrong blog my dear friend. Car and loan are antonyms here. The only load allowed is the one you take out of your own savings. And the good news is that the current (and future) interest rate is 0%!
How high should my salary be to start a car lease?
My god, you are still using antonyms! A salary should never be used to pay a lease. A salary is used to save and build your wealth, not deplete it…
Is a car lease profitable?
Are you serious? Do you still dare to ask that question after reading this article? :D No, it is never profitable to lease!!
And no, leasing doesn’t give you any peace of mind or security, but only an additional monthly debt to pay over several years…
Is it a good idea to lease a car?
Short answer: no! Long answer: No, it will make you poorer in the long run in return for short-lived gains in self-esteem.
Just for the record: Leasing can be an option to evaluate IF AND ONLY IF you are very wealthy, AND you are already FIRE(“Financial Independence, Retire Early”), AND you are looking to optimise your Swiss tax situation by paying your car expenses through a company. But, this article is not written for you.
Why shouldn’t I lease a car?
Because you would be throwing CHF 87'268 out of the window over 8 years, and your self-esteem drops the day you no longer have a nice car. It’s better for your wealth and self-esteem to save your money, and buy what you can afford only.
How do you finance a car when you have no money?
The first option is to walk. The second is to take a bike. The third is to take public transport. And if you really want a car, then you can save up and buy a car you can afford.
Leasing, car credit, and car loans are NOT acceptable solutions.
What is the difference between leasing and credit?
Leasing and car loans are two types of financing to buy a car. By financing, I mean two types of DEBT! So these are two things you want to avoid!!
A car lease is a long-term lease contract where the customer pays a monthly fee to use the vehicle for a certain period of time. At the end of the contract, the customer can either return the vehicle or buy it at a predetermined price. Throughout the period, the vehicle remains the property of the finance company.
On the other hand, a car loan is a loan that allows the customer to buy the vehicle immediately in exchange for a fixed monthly repayment (i.e. a BAD debt!) over a fixed period. The customer becomes the immediate owner of the vehicle and is responsible for all maintenance costs.
In conclusion, leasing is a long-term lease contract with an option to buy at the end, whereas a car loan is a loan that allows the customer to purchase the vehicle immediately with full responsibility for maintenance.
How does car leasing work in Switzerland?
You go to a car dealer.
Every car has a price you can’t afford.
You imagine your self-esteem rising as you drive around Lausanne train station.
You sign a financial contract you don’t understand.
You get scammed.
It’s that simple, right?!
Three years later: you come across this article (way too late!). You terminate your leasing contract by paying the unreasonable early termination fee. You cry for a few days. Then you start to take control of your life and build your way up to financial independence. And above all: you NEVER EVER lease again in your entire life!!!
How about you, have you ever made the mistake of leasing a car? How did you get rid of it - since you don’t have it anymore, we are all proud of you!
Photo credits: Pexels.com
