There’s no one-size-fits-all answer in the lease versus buy debate. What matters is that you weigh up the pros and cons for your situation. Here’s what you need to know.
If you have your heart set on owning a car, taking out a loan and steadily paying off the vehicle can be a sensible option. You have the freedom to choose whichever vehicle you like (within your budget), and even modify it to your tastes. You want the car tricked out with mag wheels and a purple pearl sheen Duco? No problem. That’s because you are the owner of the car.
At the end of the loan term, the car is yours unencumbered. However, with ownership comes responsibilities. That means all of the car’s maintenance costs will come straight out of your pocket.
Leasing – you won’t own the car, or the costs
Leasing offers quite a different proposition. Most notably, instead of you owning the vehicle, a finance company will. You’ll make regular lease payments, which in practical terms, may feel like loan repayments. However, at the end of the lease term you won’t own the car. Sure, you have the option to take possession, but this usually calls for you to make a lump sum “residual” payment at the end of the lease.
The presence of this residual is what encourages many lessees to simply hand the old car over and continue making lease payments on a new car. That’s fine if you don’t have a strong view about owning the vehicle outright. But it may mean continually making lease payments year after year.
The upside of leasing
Leasing does offer other benefits. As the finance company owns the car, it is often responsible for the maintenance of the vehicle – a cost that is typically factored into the lease payments. Through what is known as a “novated lease”, you may be able to have the lease payments included in your salary package. This can make the car’s running costs very tax-friendly. Do note though, your employer is under no obligation to go along with a novated lease.
When it comes to freedom and flexibility, leases can be more restrictive than buying a car outright. Those mag wheels and pearl sheen Duco are likely to be out of the question. Instead, the lease company may offer a limited selection of vehicles to choose from. Your annual kilometres may be capped, and unless you can include the lease as part of your salary package or in the running of your own business, you may find it hard to secure lease finance altogether.
A key point is that, like car loans, leases come in all shapes and sizes with varying conditions and costs.
Speak with your Mortgage Choice broker, who can explain the car finance option most appropriate for your needs – and track down the deal that’s right for you.