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Should I lease or buy a car?

Find out if you should lease or buy a car and learn about the pros and cons of each option.

If you’re looking to get a car, it can be difficult to choose between buying one outright or leasing. Both have a number of benefits and drawbacks, and it’s important that you make the right financial decision for your situation.

See which one may suit your needs and learn about the two options below.

Leasing vs buying

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 pay a fee to use the vehicle for an agreed timeframe for a set amount of kilometres per year.

You make fixed monthly payments over the course of the lease. At the end of the lease term, you may have the option to buy the car, or start leasing a new vehicle.

Buying a car involves you purchasing a vehicle so that you own it 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.

What are the differences between buying and leasing a car?

Who owns the car?
When you buy a car, you own it — your lender only has a lien against the vehicle should you fail to repay. Because of this, there are no limits on how long you can keep your car or how much you can drive it.
A lease is more like an extended rental period. However, lease contracts may give you the option of buying at the end of term, sometimes at a discounted rate.
What are the upfront costs?
Usually a down payment of 10% to 20% of the car’s value as well as registration costs, fees and taxes.
It may include a down payment, a security deposit, an acquisition fee, the first month’s payment and other taxes and fees.
How large are the payments?
Car loan payments can be quite hefty, especially if you choose a shorter loan term. You’ll be paying back both interest and principal, so be sure to calculate how much it might cost you.
Since you aren’t paying for the car itself, your payments will be smaller. Lenders charge interest, as well as fees for vehicle depreciation and mileage, should you go over your limit.
Do you need to worry about maintenance?
Yes, but not for return value. By conducting regular maintenance and avoiding excessive wear and tear, you can keep your car functioning for years to come. You can also improve its trade-in value, should you want to buy a new vehicle.
Yes. Beyond regular maintenance, you’ll need to pay for any excessive wear and tear that happens to the car during the lease period.
Are there mileage limits?
No. Since you own the car, you can drive it as much or as little as you want.
Yes. Most lease contracts limit you to a certain amount of kilometres for the term of the lease. If you go over this, you’ll likely have to pay a penalty charge.
Can you end the contract early?
Yes. As long as you have the money to pay back your lender, you can pay off your loan at any time. However, be aware of any closing costs or prepayment penalties your lender might charge.
Yes, but there will likely be high fees and charges attached to ending your contract ahead of schedule.
What happens at the end of the loan term?
You’ll own your car, free and clear. You can sell it or keep it, whichever you choose.
Once the lease ends you must return the vehicle and your payments cease. You may be able to extend the contract or purchase the car depending on the terms of the lease.

Is car leasing the right option for me?

If you’re weighing up the pros and cons of leasing a car vs buying, here are some questions to ask yourself:

  • How often will I be driving the car? Leases usually lock you in to driving an average amount of kilometres annually, so you need to consider this before you apply.
  • Do I 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.
  • What is my 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. This is seen as less of a risk for the lender so you may have a better chance of being approved.

Should you lease or buy a car? The pros and cons

  • Does not tie you down to a single vehicle, and you get the choice of make, model and specs.
  • Gives you the option of upgrading your car every two or three years.
  • Requires less upfront money.
  • Is an option for people who travel frequently and need a car in different locations.
  • Leasing may be a good option for businesses who don’t want their cash flow tied up in a depreciating asset.
  • Once the lease term ends, you won’t own the car or be able to continue using it.
  • In the long term, leasing a car may be just as or more expensive than a car loan, when you take into account monthly repayments, fees and charges.
  • You are unable to make any alterations to the car.
  • You cannot claim the car as your own asset for other borrowing or financial purposes.
  • Charged extra if you go over the set amount of kilometres; and no refunds for driving less.
  • If you decide to take out a loan your repayments will be similar to what you would pay when you were leasing. But at the end of the term you will own the car outright.
  • Whether you take out a car loan or buy the vehicle outright, you can still claim the car as your own asset.
  • May require a larger upfront cost.
  • The value of the car depreciates in time, making your investment less valuable.

8 more factors to consider

  1. Limited kilometres. Lease agreements usually allow you to drive a certain amount of kilometres annually, so consider your commute and any trips you’ll take with your car. A lease may not be suitable if you travel frequently.
  2. Consider trade-in value. If you own a car and are planning on buying a new one, you can typically trade it in to the dealership for a down payment on a new vehicle. However, your vehicle may not be worth as much as you think, especially if it’s an older model.
  3. Tax deductions for business use. If your car is mainly used for business, you could write off both lease and car payments as tax deductions.
  4. Good credit can get you better rates. If you have great credit, but not a lot of money for a new car, leasing a vehicle can get you a better car for less money. With good credit you could get more affordable monthly payments than buying a car.
  5. Secured loans best for poor credit. If you have negative marks on your credit, consider using a secured loan to buy a car. You’ll get lower rates and have a better chance of approval by taking out a loan in which your car is used as collateral.
  6. Newer cars for less money. If you like having the latest vehicle on the market, a lease allows you more flexibility to upgrade every few years. And depending on your contract, you can trade in your older lease and get a newer model for the same monthly payments.
  7. Leases don’t allow car modifications. If you think you’ll add a new exhaust system or racing stripes to your car, consider buying. Lease agreements restrict you from making any modifications and will charge fees if you do so.
  8. Take care of your car. Lease agreements typically have a “wear and tear” clause stating that the person leasing will be responsible for any damages that exceed average wear and tear — such as stains, dents, rips and scratched rims. Therefore, drivers who park on city streets, drive with dogs in the car or are generally tough on cars should consider buying instead.

    What financing options are available for cars?

    • Secured personal loan. A personal loan that is secured uses 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.
    • 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 may come with a balloon payment at the end that is designed to lower your ongoing repayments.

    Compare car finance options

    Name Product Interest Rate (p.a.) Min. Loan Amount Max. Loan Amount Loan Term Establishment Fee
    Simplify Secured Car Loan
    6.25% - 12.50%
    12 - 60 months
    $100 - $500
    Eligibility: Must be 18+, a New Zealand resident or permanent citizen and have an income of at least $500 per month.
    See how much you could borrow without affecting your credit score.
    MTF Finance Secured Car Loan
    8.70% - 20.70%
    3 to 60 months
    Eligibility: Must be 18+, be an NZ citizen, resident or have a work visa, and have a regular source of income.
    Secured car loans from $2,000.
    FROM 6.99%
    The Co-operative Bank Unsecured Personal Loan
    6.99% - 19.99%
    6 months to 5 years
    Eligibility: Be 18+, an NZ citizen/permanent resident, or have a valid work visa.
    Floating-rate, unsecured personal loans from $3,000.
    Kiwi Car Loans Secured Loan
    6.95% - 19.95%
    1 to 7 years
    $195 - $995 depending on lender
    Eligibility: Be 18+, an NZ citizen, permanent resident or have a work visa, and have an income of least $500 per week.
    100% online secured car loans from $5,000
    Lending Crowd Secured Car Loan
    5.03% - 15.44%
    3 or 5 years
    $450 - $1,450 depending on the amount borrowed
    Eligibility: Be a NZ resident/citizen and have a good credit score.
    Borrow $5,050 to $200,000 for your chosen vehicle. 100% online with no paperwork or early repayment fees.
    CarFinance2U Car Loan
    8.95% - 23.95%
    1 - 5 years
    Eligibility: Be at least 21 years old, have a valid NZ driver's licence and be an NZ citizen or permanent resident.
    With a CarFinance2U secured or unsecured car loan you could get pre-approval for your next car in 30 minutes.

    Compare up to 4 providers

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