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Is it better to lease or buy a car?
Not sure if you should buy or lease a car in Australia? Compare your options here.
"To lease a car, or to buy a car, that is the question."
If you can't decide between buying or leasing a car, then our guide will help you.
What is the difference between leasing and buying?
The key difference between buying and leasing a car is ownership of the vehicle, but this could be a positive or negative depending on your situation.
In general, leasing will offer more flexibility and likely cost less. Buying a car will likely to be more expensive, but could give you greater stability and the benefits of ownership.
Leasing a car gives you access to a vehicle for an agreed period, which can be for personal or business use, or a combination of the two. You will generally make regular payments over the course of the lease and may have the option to buy the car, or starting leasing a new vehicle, at the end of the lease term.
Buying a car involves you purchasing a vehicle so that you own the vehicle outright. You can either make your purchase using a car loan, which can be paid off in a period of up to seven years, or by buying the vehicle using your own savings. You are then free to use the vehicle as you wish, as well as sell it.
Buying vs leasing: Pros and cons
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What financing options are available for cars?
- Secured personal loan. A personal loan that is secured works by you using the car as a guarantee in order to finance it. This is less of a risk for the lender as they can sell the car should you default on the loan. These loans generally have lower rates and fees and are offered as a fixed or variable rate option.
- Unsecured personal loan. An unsecured personal loan can not only be used to finance a vehicle, but can also be used for any other purchase you wish to make. These loans are flexible but they usually come with higher fees and rates because it is a risk to the lender.
- Dealer finance. If you purchase a car from a dealership then they will most likely have a financing option they are able to offer you. It's best to do your research before you sign up as dealer financing usually comes with inflated rates and high fees. Dealer finance usually comes with a balloon payment at the end that is designed to lower your ongoing repayments.
- Novated lease. A novated lease is basically a lease agreement between you, your employer and the lease provider. Some of your lease obligations are transferred to your employer and as such your car is treated like a company car for tax purposes. This type of lease can save you money by allowing you to access benefits such as GST discounts, income tax savings and savings on the cost of running the car.
Compare your leasing and car loan options
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Frequently asked questions about leasing or buying a car
How often will you be driving the car?
Leases usually require you to drive an average amount of kilometres annually, so you need to consider this before you apply.
Do you own a car now?
If you already own a car and are looking at purchasing a new one you may be able to take advantage of a trade-in offered by some dealerships. You also have the option of selling a car to be able to put more money on a lease upfront
Will the car be for business or personal use?
If your car is mainly for business use you may be able to work out a novated lease with your employer, or if you are opting for a personal car you need to consider how you will be using it and whether a lease or purchase will be best for you.
Will you have to pay maintenance costs?
Whether you have to pay servicing or maintenance costs will depend on your lease agreement. These costs may be entirely included in your lease, you may have to cover some servicing costs (such as oil changes), or you may have to pay extra for a maintenance package.
What is your credit history like?
Leasing companies may not approve you for a lease if you have bad credit history, but then again some loan providers may not approve you either. If you have negative marks on your credit file you might want to consider a secured loan, as this is seen as less of a risk for the lender you may have a better chance of being approved.
Picture: Shutterstock
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How do you sell a car under finance?
Read the guide on how to sell an encumbered vehicle to find out the extra steps involved.
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Green Light Auto Finance Car Loan Broker
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People’s Choice CU Discounted Personal Loan (Car Loan)
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Ask a question
If I have salary sacrificed too much for my car, do I get the money paid back to, ie is it pit back into my salary and taxed accordingly?
Thanks
Hi Rooster,
You’ll need to look at the terms of the agreement, but generally, if you do fewer miles than is budgeted or you have salary sacrificed too much, the money should be paid back to you. You’ll need to contact the company administering the lease.
Hope this helps,
Elizabeth
I recently started a sales job (commission only, no salary). My 11 year old car died just a few days ago (had only done 77,000km in 11 years). So, I am in the market for a new one (I’m borrowing a car meanwhile). I have a few options:
1. buy a new car outright (huge cash outlay from my savings. I want to get my lifelong dream car… a mini convertible)
2. Wait and buy a demo mini
3. Buy a used mini but risk costly repairs
4. lease the mini
5. approach my employer to contribute to a lease but considering I’m not paid a salary I don’t know that this is possible?
Any suggestions?
Thank you!
Hi MiniMe,
I can’t advise you which will be the best option for you as it will really depend on your own individual needs and financial situation. However, I can provide you with some general information and guides that will help.
Using your savings is a great way to purchase a car and won’t leave you in debt except you won’t have a buffer to use for anything else, and you should also consider if you’ll need that money for other reasons. In terms of demonstrator vehicles, this is also a great way to save. You can read our demo car buying guide to learn how much you can save.
A used car can also be a good chance to grab a bargain as long as you inspect the vehicle thoroughly. We’ve written a used car checking guide that you can take a look at to familiarise yourself.
Leasing the mini may also be an option if that works for your needs and lifestyle, but just keep in mind you won’t be owning an asset. In terms of a novated lease, it will be up to your employee whether they offer this option to you. If they do, this is an easy method for you to pay for a vehicle. Please read more about novated lease through our website.
I hope all of this information will be of use.
Thanks,
Elizabeth
Thanks so much Elizabeth. Much appreciated!
If I get a novated lease on my car will I need to pay FBT?
Hi Dora,
It depends which method you choose when taking out a novated lease. There are two methods you can opt for when taking out a novated lease: the Fringe Benefits Tax method or the Employee Contribution Method. You can see an outline of those two options so you can choose the best one for your situation.
Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you.
Hope this helps,
Elizabeth
My current car is under novated lease, the lease expires in Feb 2015. There is a balloon amount which I need to pay to acquire the car.
I want to keep the car for another 2 years, can you help me with a tool or calculator to decide if i should refinance or go in for another lease term?
Hi Tarun,
You can use our novated lease calculator and our personal loan calculator to calculate your costs and find out which option will cost you more in the long run.
Please ensure to read through the relevant product disclosure statement and terms and conditions of your loan to ensure that you got everything covered on your loan.
I hope this will help.
Thanks,
Elizabeth
This information has been really useful, including the section on car loan rates through RACQ and the banks. Thank you !!!
Hi Nat,
Thanks for the feedback we are glad that you found the content so useful.
Regards
Jodie