New car - Should you have a car loan or a car lease?

November 21, 2014
Rikki Stanley

Daniel Meade from Mortgage Choice compares your options


There is much debate on what is the best option between a car loan, (where you borrow a certain amount from a lender ( bank, credit union etc) and pay it off at a certain interest rate, over a certain time frame) or a car lease ( where you pay a lease amount each month, and at the end of the lease period, to own your vehicle you either pay a lump sum to own the car outright, continue with another lease, or perhaps even upgrade your vehicle and start all over again).


Often it’s a personal preference that decides for you. Here’s some basic ideas regarding the differences between leasing and buying a car to help you determine which option suits you best: 


  1. Buying a car outright:   This is the simplest option. You pay for the car in full at the time of purchase. The car is yours, you can do what you like with it, no loans or lease required.  Simple….. if you have a spare $20-$50K or more just hanging around ready to be spent.
  2. Using a car loan to purchase a car:  A car loan simply means you pay a set number of monthly repayments over a 3-5 year loan term to a lender. You can borrow the majority of the purchase price, or just part of it.  Once you make all your re-payments over that term, you own the car outright and can keep it forever, or at least until you want to upgrade when it’s ready to be handed over to your kids as their first car!
  3. Taking a car lease to purchase a car:   A car lease, lets you use the vehicle, not own it. If you really want to own the car, you can.  The process is similar to a car loan in that you ‘pay’ for the use of the vehicle over a set term, similar to loan payments, but at the end of the lease, you may have an option of buying the vehicle by paying a lump sum ‘residual’ payment. Often the residual payments can be quite large, so it is a common trend to either upgrade the vehicle at the time of the lease expiring. This often results in people taking on a new lease, on a new vehicle, and the cycle begins again. This option is great if you are one to want the latest wheels every few years. Or if you have young children and you are waiting until they no longer leave sticky finger prints everywhere before you upgrade to your dream ride. 


Types of Leases:

a)      Operating Lease – this is similar to a rental agreement. You give back the vehicle and stop making payments when the lease ends. Kind of like giving back the house and keys that you’ve been renting when you move out.


b)      Finance Lease – this is similar to a hire to buy arrangement, and is popular with business owners who want to supply an employee with a vehicle.  At the end of the lease you have an option of:

  1. buying the car outright by paying the residual value of the car
  2. swaping the lease over to a new vehicle and continue making monthly repayments.


c)       Novated Lease – This is where your employer makes the lease payments out of your before-tax salary, but YOU still take out the lease in your name. This salary-packaging reduces your taxable income, making it a win/win for both parties. The downside is that if you lose your job, you become responsible for the lease payments.


Car loans if you are self-employed:

Mortgage Choice can still help you if you are self-employed and need finance for a vehicle that suits your business cash flow and your needs.


Low Doc options for finance: Your car costs may be tax deductable, including the loan interest, so it is worth investigating this option, if you are self-employed. With low doc options however, proof of income is a must for Lenders, so you will need to supply your income tax returns and accounting records to help with the process.

What about zero % car loans? Check out our blog dedicated solely to these loans here

Daniel can also help you with the process of getting your car loan. To read more about that, see our blog about getting your finances ready.  Of if you already have a car loan or lease, Mortgage Choice can also help with refinancing your car loan.   

Daniel is ready to help you with your car loan or lease, so if you want to learn more about your finance options, please call 07 3833 9666 or email today.


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Important information

This article is for general information purposes only. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances.

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Posted in: Car loans & leasing

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