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 and 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 make regular payments over the course of the lease and may have the option to buy the car, or start 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.
Lease vs buy: Questions to ask yourself
- How often will I 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 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
- 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.
- 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, as this is seen as less of a risk for the lender you may have a better chance of being approved.
Should you lease or buy a car? Here are the pros and cons
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. With a fully maintained novated lease your employer pays your lease and car maintenance expenses 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. There is also the option of a non-maintained novated lease where you take on the maintenance and other running costs of the vehicle.