ROMA – “In cars taken on installments, God is dead” thus sang Francesco Guccini already in 1965. Payment by installments as an alternative for those who do not have the entire sum available has therefore existed for some time; over time the financial offers have become increasingly sophisticated and accompanied by additional services.
The Guaranteed Future Value
Towards the end of the 90s a formula was born which provides for a maxi final installment after a certain number of monthly installments (usually 36), by paying which, in a single solution or in installments, the customer keeps the machine. If a financing program has been chosen which provides for the Guaranteed Future Value (GFR) of the car, the customer can also change the car or return it without paying the maxi final installment.
This was the beginning of a system aimed not so much at buying and owning as at using a car for a certain period of time. The presence of a VFG is especially important today in the face of the change in technology taking place from combustion engines to electric motors which could make a current model obsolete.
Sharing economy
In recent years, the sharing economy boom has exploded, already predicted by Jeremy Rifkin, one of the first to talk about the sharing economy, and the market has equipped itself with increasingly creative financial formulas.
In the rental sector, which until a few years ago was divided into short-term (a few days, at most a few weeks) and long-term (24-36 months), a series of flexible products were introduced in terms of duration with the possibility of driving different cars during the contract (medium-term rental or subscription). Flexibility also allows you to decide month by month whether to keep the same car, interrupt the contract or change car: a very modern formula that meets the concept of using the car when necessary. Obviously this extreme flexibility has a cost: the monthly fee to use the rental car for a few months is about 40% higher than that of a 48-month contract.
For a company or in any case a VAT holder, leasing can be the most convenient formula because it gives certainty of costs and can offer additional fleet management services, if the company has more than one vehicle.
Financing for individuals
But among the various existing formulas which is the most interesting and the most convenient for a private citizen who has no form of deductibility of costs or VAT?
Here we have examples of purchases made with financing, leasing and long-term rental, collected in order to ensure the consistency of the various simulations, comparing the monthly installments for the purchase of a specific vehicle with the same advance, the same duration (36 months) and the same services (insurance with the same deductibles, maintenance and warranty). These simulations are used to compare one financial product to another; for an absolute evaluation it must be kept in mind that the rates used are those of November and that the insurance rates depend on the geographical area.
The monthly installments do not differ much from each other; a variable that can fluctuate is instead the insurance which in the case of financing and leasing depends on the area of residence and if stipulated directly by the owner can vary significantly according to the class of merit. In the simulations the merit classes were not evaluated but a deductible formula was used.
For leasing and financing there is a Guaranteed Future Value (GFR), equivalent to the maxi final installment, constructed in such a way as to leave a surplus value at the end of the contract, a positive difference between the market value of the used car and the final payment, the difference usually hovering around 10%. Therefore the customer can keep the car, paying less than the market value, this possibility is excluded for the rental.
What to choose
The choice between the three purchasing methods is not linked so much to purely economic considerations which, as mentioned, can also vary significantly according to the province and the class of merit as to the attitude of the customer.
A person who prefers to use the car with minimum problems and change it every 3 years, could choose to rent. A more convenient but ultimately more expensive solution, if we consider that the customer can only return the car on expiry. In this case, he will also have to pay attention to deductibles, which are often onerous, and to possible exclusions, such as for example tire changes or hail damage, events frequently excluded even by Kasko without deductibles. It should be noted that additional services also have a cost; for example, paying a €30 parking fine can easily become double that in management fees.
On the other hand, a person who wants to maximize savings (for example on RCA with a low credit rating) and at maturity wants the option of keeping the car at an advantageous price would do well to apply for financing or leasing with a final payment linked to a Guaranteed Future Value.
Differences between leasing and financing
There are some differences between leasing and financing:
- In financing, the car is made out to the customer, while in leasing it is the property of the leasing company which can deduct the VAT
- Consequently, in leasing, Fire, Theft and Kasko insurance is calculated on the value of the car without VAT and therefore costs about 20% less
- At the end of the contract, if the customer decides to keep the car, in the leasing there is an additional cost for the change of ownership; if, on the other hand, the customer decides to return the car, leasing allows it to be re-invoiced with VAT; this can actually increase the value of the car by 5-7%.
More generally, if you are champions of the sharing economy, of using things without owning them, you are free to change cars often, turn to rental, possibly in its more flexible forms: it will cost you more but you will have the thrill of always driving a car new.
If, on the other hand, you are used to taking care of your car, you want to keep it even longer than 3 years and you want to maximize your savings, turn to financing or leasing.