Leasing contract for vehicles: definition, advantages and types of contract

Leasing cars can be an advantageous alternative to purchasing, especially for companies and the self-employed, due to the tax savings. Thus, the car is only given to the lessee for use, the lessor remains the owner. 

The following article explains how a leasing contract works, what different types there are and what to look out for when concluding one. 


  1. How does leasing work for vehicles?
  2. The different forms of leasing: Kilometre vs. residual value leasing
  3. Partial amortisation vs. full amortisation 
  4. Leasing contract with purchase option at residual value
  5. Leasing with right of tender
  6. Frequently asked questions

1. how does leasing work for vehicles?

In principle, the leasing contract is a transfer of use contract: similar to the rental contract, the lessee receives a right to use an object. In contrast, he must pay monthly contractually fixed leasing instalments. 

In contrast to the rental contract, the lessee is responsible for all obligations such as maintenance and repair in the event of damage, even if this is the fault of third parties. 

Since VAT is only charged on the instalments and not on the purchase price of the vehicle, the leasing instalment is comparatively cheaper than a purchase. The amount of the instalments depends on the new price and model, similar to a financing purchase. 

The most important features of a leasing contract: 

  • Monthly leasing instalment usually cheaper than credit instalments for a purchase
  • Contract duration typically between two and four years
  • Early termination not possible
  • Return of the vehicle after expiry of the contract period
  • Tax advantage for companies and self-employed → the monthly instalments can be deducted from taxes 


That's how leasing works: 

2. the different forms of leasing: Kilometre vs. residual value leasing

2.1 Kilometre leasing

With a kilometre contract, the expected kilometres driven are determined when the contract is concluded. The monthly leasing rate is then calculated on this basis. The higher the number of kilometres, the higher the rate. 

If the car shows more kilometres than agreed at the end of the contract, the lessee must pay accordingly. If there are fewer kilometres, he gets money back. The price per kilometre is fixed at the beginning of the contract. Lessees should make sure that the price for fewer kilometres driven is the same as the price for the additional kilometres. 

Facts about kilometre leasing at a glance: 

  • Individual agreement of the mileage in kilometres 
  • Monthly instalment depending on the number of kilometres specified in advance
  • Invoicing of too many or fewer kilometres driven at the end of the contract
  • Planning security by fixing the total costs
Caution: The regular statutory right of withdrawal does not apply to the kilometre contract. However, the contracting parties may agree on a voluntary 14-day right of withdrawal.

2.2 Residual value leasing

In a residual value contract, the lessor estimates at the beginning of the contract how much the car is still worth at the end of the contract period. This estimated value serves as the basis for the leasing instalments.

If the value of the car is lower at the end of the contract, for example due to an accident, the customer pays the difference. This residual value risk is borne by the lessee. 

If, on the other hand, the value is higher than the fixed residual value, the lessee is paid 75% of the difference.

The statutory right of cancellation of 14 days applies to the residual value contract.

Tip: The residual value should be set realistically, even if this results in somewhat higher leasing instalments. Otherwise, the lessee may be faced with high additional payments. 

Facts about residual value leasing at a glance: 

  • Leasing rate dependent on residual value
  • Risks at the expense of the lessee
  • Residual value is not equal to purchase value

3. partial amortisation contract vs. full amortisation contract

3.1 Partial amortisation contract

As the name suggests, with partial amortisation only a certain part of the purchase price is paid off during the term of the contract.

If no right of tender (see 5. Right of tender) has been agreed, the vehicle is automatically returned to the lessor at the end of the leasing period.

3.2 Full amortisation contract 

Unlike partial amortisation, the lessee repays the entire purchase price during the term. This leads to higher contract instalments and is only worthwhile for the lessee if the costs can be calculated without risk. Therefore, full amortisation is usually only used for additional parts, such as winter wheels or roof racks.

4. leasing contract with purchase option at residual value 

Generally, a purchase option can be agreed in every leasing contract after expiry of the leasing period. This means that the lessee has the option to purchase the vehicle at the previously determined residual value after the expiry of the contract. This can be negotiated for residual value contracts as well as for kilometre contracts. 

For the lessee, a purchase is only lucrative if the residual value corresponds to the current market value. If the lessee decides against exercising his purchase option, it may still happen that he has to pay for the additional costs incurred by the lessor. The additional costs then result from the difference between the residual value and the sales price actually achieved on the market.

5. leasing with right of tender 

Contracts with a right of tender oblige the lessee to buy the vehicle at the end of the leasing period at the previously determined residual value. 

Unlike the purchase option, the lessee has no right to buy the car. However, the lessor may voluntarily offer to buy it. 

6. frequently asked questions

What information must a leasing contract contain?

For whom does leasing make sense? 

Leasing is particularly worthwhile for business people, as they can deduct the costs incurred from their taxes. In addition, no high down payment is required and, due to the relatively short term of the contracts, you can always drive a new car or at least a very up-to-date vehicle. 

Is a leasing contract a rental contract?

No, in a leasing contract, the lessee has the rights, risks and obligations that are otherwise held by the lessor in a rental contract. For example, the lessee is liable for maintenance and servicing, as well as for all damage , regardless of whether it was caused by the lessee or not. 

What are the lessee's obligations?

The obligations essentially consist of paying the agreed monthly leasing instalments, taking out insurance for one's own account, regular servicing and maintenance, and returning the vehicle at the end of the contract term.

Who pays for insurance and maintenance? 

When leasing vehicles, the lessee usually assumes all costs incurred for insurance, maintenance and repairs. Some leasing companies offer an additional package on top of the contract where the lessor takes over these costs. 

As a lessee, can I terminate the leasing contract? 

No, in principle this is not possible, the contract is valid for the fixed period. Even if the driving licence is lost or in other emergency situations, the contract continues to run.  


The contents of this article are for information purposes only. It is not legal advice and no liability is accepted for the contents.

Sebastian Wengryn

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