Car leasing in Slovenia: how it works and what to check in the contract

When you lease a car, the leasing company buys it, not you. You use the car and pay instalments, and it only becomes yours after the last one. Most of the rules you sign up to follow from this: mandatory comprehensive insurance, limits on modifications and what happens if the car is written off or you lose your income.

This article explains how leasing works and what to look for in the contract. If you mainly want to know whether leasing is cheaper than a loan, read Car leasing or loan or enter your case in the leasing vs loan calculator.

We based the rules in this article on the general terms of finance leasing for individuals of two Slovenian leasing companies and on the Consumer Credit Act (ZPotK-2). Details can differ at your leasing company, so always read its general terms too.

How finance leasing works

Finance leasing is the most common type of leasing for individuals. It works like this:

1. You choose a car at a dealer and agree on the price.
2. The leasing company buys the car from the dealer, and you pay a down payment (some offers have none).
3. The leasing company gives you the car to use, and you pay it a monthly instalment made up of part of the price and interest.
4. Once you pay the last instalment, ownership passes to you.

For the whole term the leasing company owns the car and is registered as the owner in the registration certificate. You are the user. So you need the leasing company’s authorisation to renew the registration, which you only get if you have no unpaid instalments. Modifications and extra equipment need its written consent, and added parts become its property.

Finance leasing where ownership passes to you at the end is covered by the Consumer Credit Act. That gives you the same protection as a loan: the contract must state the annual percentage rate (APR), you can withdraw within 14 days without giving a reason, and early repayment fees are capped by the rules described below.

Operating leasing: renting instead of buying

With operating leasing you only rent the car for a set period, usually 3 to 5 years, and then return it. The monthly payment often already includes insurance, registration, servicing and tyres, so you know in advance what the car costs you each month.

Before signing, check:

• how many kilometres a year are included and what each extra kilometre costs,
• how wear and tear is assessed on return and what you can be charged,
• what exactly the payment covers, for example winter tyres and a replacement car.

Because ownership doesn’t pass to you with operating leasing, the Consumer Credit Act doesn’t apply. The terms depend entirely on the contract. Ending it early is usually expensive, as you normally have to pay a large part of the remaining payments.

What you need and how fast it is

Like a bank, the leasing company checks your creditworthiness and your existing debts in the SISBON credit register. You need an ID, your tax number, proof of income and the dealer’s quote for the car. For larger amounts or a weaker credit profile it may ask for a guarantor.

Approval is often faster than at a bank, sometimes the same day, and many car dealers arrange leasing right in the showroom. That is convenient, but the showroom offer isn’t necessarily the cheapest. Before signing, compare at least one more offer and the APR, not just the monthly payment.

Leasing counts as a debt, just like a loan. If you plan a mortgage in the next few years, the car payment will reduce how much you can borrow. Check what’s left in the credit capacity calculator.

Comprehensive insurance and assignment

With finance leasing, full comprehensive insurance is mandatory for the whole term. The general terms of leasing companies usually require:

• full comprehensive insurance including theft and hail,
• a deductible of at most 1% of the car’s value,
• assignment of the policy to the leasing company (vinkulacija), so that in a major claim the payout goes to it first.

Comprehensive insurance for a car worth €25,000 often costs €600 to €800 a year, depending on the insurer, your no-claims bonus and the car. Over five years that is €3,000 to €4,000, a big item in the total cost of leasing. If you don’t arrange the insurance or don’t send the policy, the leasing company can take it out itself and charge you.

Total loss or theft: when you still owe money

After a total loss or theft the contract ends. The insurer pays the car’s market value minus the deductible, and the money first goes to the leasing company to settle what you still owe. If anything is left, you get the difference. If the payout doesn’t cover the debt, you pay the rest yourself.

Maja leases a new car for €25,000 over 5 years at 6.9%. After one year she has an accident and the car is written off. A new car often loses around a fifth of its value in the first year, so we assume it was worth €19,500.

Calculation: annuity payment, 60-month term, 6.9% interest rate, no balloon and no fees. The deductible is 1% of the car's price. The car's value after one year is an assumption, in practice the insurer assesses it.

With no down payment Maja is left without a car and still owes about €1,400. With a down payment the insurance payout returns a large part of it, and she can use that as a down payment on another car.

How to avoid this:

• put down at least some money, so that the debt in the first years stays below the car’s value,
• ask your insurer about new-value cover, which some offer for new cars for an initial period,
• with a balloon (a larger final payment), expect the debt to stay above the car’s value for longer.

If you can’t make a payment

If you pay late, you owe statutory late interest and reminder fees. If you miss two instalments in a row, the leasing company sends a written demand and gives you an extra deadline, usually 15 days. If you don’t pay, it can terminate the contract.

You then have to return the car, usually within 15 days, and immediately pay the overdue instalments and the rest of the debt. The leasing company sells the car and deducts the price from the debt. If the price is higher than the debt, it pays you the difference. The down payment and instalments already paid are not refunded, as they count as payment for using the car. You also pay the costs of repossession and any repairs. Since a used car sold this way often fetches less, you can end up without a car and still owe money.

If you see trouble coming, talk to the leasing company straight away, before you miss a payment. Sometimes you can agree on a payment break or a longer term. Once the contract has been terminated, there are fewer options.

Early buyout and the end of the contract

You can pay off a lease early at any time, in full or in part. You then pay no interest for the rest of the term and get back a proportional part of the arrangement fee.

An early repayment fee is only allowed with a fixed interest rate, and even then it is capped:

• at most 1% of the principal repaid early if more than a year of the contract is left,
• at most 0.5% if a year or less is left,
• nothing if you repay €10,000 or less early within 12 months.

With a variable rate there is no fee. More in Early loan repayment, as the same rules apply to finance leasing.

When you pay the last instalment, the leasing company transfers ownership to you, and you usually pay the transfer costs. If your contract has a balloon, the last payment is larger. You then pay it from your own savings, refinance it or sell the car. Plan for this well ahead, not a month before the contract ends.

Checklist before signing

• Compare the APR of at least two offers, not just the interest rate and the payment.
• Check whether the rate is fixed or variable. With a variable rate the payment changes with EURIBOR.
• Work out the total cost including insurance for the whole term.
• Find out whether the contract has a balloon and how large it is.
• Check the arrangement, account and ownership transfer fees.
• Think about a down payment: without one the risk after a total loss is higher.
• With operating leasing, check the kilometres, wear and tear and early termination costs.
• Read the general terms. That is where the rules on late payment, damage and termination are.

If you’re buying an electric car, also compare green loans, which often have a lower rate. A loan doesn’t require comprehensive insurance and the car is yours from day one. Rates of regular car loans are in the consumer loan comparison, and you can compare both options in the leasing vs loan calculator.