Terminating a lease early

Dear Sir/Madam,

I moved to Switzerland in April 2015 for a new job. I lost my job in June 2016 but I am still living in Switzerland (Fribourg) and I currently qualify for income from the chomage.

My question to you is that since I am new to Switzerland and when I agreed to sign up for the lease agreement, its only after the fact that I come to realise that the garage has not exactly given me the best deal possible, and I pay a lot of money for this lease.

I feel that the salesman has taken advantage of the fact that I am not Swiss, I am from the UK and I think in miles and not kilometers for example. The leasing % is 8% and not long after i completed the deal the leasing at the garage was advertised at around 2%. Also when I originally agreed to go for this deal, prior to collecting the car I sent the salesman an email to inform him that I had changed my mind on the car. The salesman said that in Swiss law I now have to accept the agreement or it will cost me a lot of money.

I paid 15000 CHF deposit and I pay 983.00 CHF/Month. After I lost my job I went back to the garage, the salesman has moved on to another car sales job and I had to speak with another salesman. As I do not speak French it is quite a challenge to get a full understanding of everything.

At that time I wanted to give the car back and I was obviously prepared that I would lose most of my deposit etc, but the garage wanted another 5000 CHF to take the car back. I did not have this money to give to the garage to take the car back. I would appreciate any advise that you can give on the above.

Best regards

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Greetings,

Swiss law (article 266k of the Code of Obligations) states that the lessee of a chattel - a broad term for movable property which includes cars - has the right to terminate the lease every 3 months by providing the lessor with 30 days notice of termination. As long as this notice period is observed, the lessor cannot claim a penalty fee.

However, the value of cars decreases substantially within the first months and years of ownership but the lease rates are normally calculated based on the entire lease term. Because of this, the lessor may request compensation for the difference between the residual value of the car and the portion of the car's original value which has not been covered by your deposit and lease payments. This is usually done by adjusting interest rates to match the reduced lease term and requesting compensation for the difference between original rates and adjusted rates.

Example: A motor car is worth CHF 80,000 at the start of a lease and its residual value at the time that the lease is terminated is just CHF 40,000. The lessee paid a CHF 15,000 deposit and made a total of CHF 20,000 worth of lease payments before the lease was terminated (CHF 35,000 combined). The lessor can request that the lessee pay the CHF 5000 difference between the total payments made and the car's residual value.

Swiss consumer credit law, (you can find these here in French, German and Italian) which applies to leases worth between CHF 500 and CHF 80,000, states that Swiss lease agreements must include a table which clearly shows what the residual value of the leased car across different portions of the lease term. This table also shows the additional payment which the lessee must pay in compensation at various intervals when they cancel the lease ahead of schedule. Review your lease agreement to make sure that such a table is included.

If this table is not included, or if the compensation claimed by the lessor does not match what is stated on the table, you can dispute the claim. If you believe that the amount stated does not accurately reflect the difference between payments made and residual value, or that a penalty fee is included in the charge, you can dispute the lessor's demand.

Verdict: A lessor cannot charge a penalty fee as long as the lease is cancelled at 3-month intervals with 30 days notice. However, the lessor can demand compensation for the difference between the leased object's original value and its residual value, less the transacted deposit and lease payments.

Leases worth more than CHF 80,000 do not fall under Swiss consumer credit law. Because high-value leases are only governed by article 266k of the Code of Obligations, disputes usually require arbitration. A recent verdict in the canton of Zurich ruled in favor of a request of compensation from a lessor, while previous verdicts ruled in favor of lessees.

An alternative to terminating a lease is to transfer your lease to a third party. Lease agreements can normally be transferred to a new lessee, and if you can find a person willing to take over your lease then this can be a better financial move. In this case, you pay a relatively low transfer charge instead of covering the lease balance.

Best regards from Moneyguru

More on this topic:
Residual value explained
Car leasing costs explained
Car leasing calculator

Hi,

I wonder if you could possibly answer a question about a car lease.

I have had a car on a 3-year lease which has only four months left. I had thought logically that if I find a good deal on a new car in the next two months, I could just pay all outstanding monthly payments in one hit and hand the car back to the Jaguar dealer.

I called MultiLease which issued the lease and they have no problem with that. However, the guy at Emil Frey said I would have to keep it right until the end.... unless I was buying a new car from him, in which case huge flexibility was possible!

Surely if he gets a car back which is younger, with less kilometers and has the 36 lease payments fully paid up he shouldn't have an issue. Or am I missing something?

Many thanks

Kind regards

Hi there,

It is important to understand that in most cases the leasing company is not the same as the car dealer which supplies the car.

The contract between you as the lessee and MultiLease as the lessor stipulates that you must pay your leasing rates over the lease term. Since returning a car to a dealer early generally does not break this agreement, you shouldn't have any problems with the leasing company.

However, the car dealer may not be keen on accepting the car early because until the leasing agreement expires you remain the legal lessee. The dealer cannot sell the car, rent it out, or lease it to somebody else during that time.

Because of this, accepting responsibility for the car over the remaining lease term poses both a financial cost and a possible liability risk for the dealer. For this reason, many dealers will not accept early returns of leased vehicles unless there is a financial incentive for them to do so (i.e. you buying a new car from them).

Best regards from Moneyguru

In some cases, getting a personal loan and buying a car instead of leasing can work out cheaper, and also lets you avoid the complications attached to lease agreements. You can compare personal loans using the moneyland.ch comparison:
Swiss Personal Loan Comparison