"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
Pros
Cons
Leasing
Does not tie you down to a single vehicle and 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
Often sill covered by the manufacturer's warranty, so servicing and ongoing maintenance charges are usually covered
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
Buying
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
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.
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.
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Query : Lease or Finance
If I want to lease a $40000 car for 3 years for business use will this be treated as a loan as compare to Finance
If I Finance $30k with balloon payment of 10K at the end of 5 years what is my actual loan amount
$30K or $40K
I Want to know this as I will need a home loan 2years down the track.
Thank you for your inquiry and sorry for the delay.
1. If I want to lease a $40000 car for 3 years for business use will this be treated as a loan as compared to Finance?
Well, that depends on the type of car leasing you would choose. You can either go for “operating lease”, “finance lease” or “fleet management”. These three options are well-explained from the link above.
2. If I Finance $30k with a balloon payment of 10K at the end of 5 years what is my actual loan amount $30K or $40K
As to the actual loan amount, this will depend on the company/lender you go with, their interest charged to the loan, and the term. You might also add to the total loan amount the fees involved in the loan. You can learn more and compare your car loan without balloon payments.
3. What is the right approach to lease or to finance?
As we’re a comparison website, I’m afraid we can’t really suggest or recommend, as it entirely depends on your business financial situation. Both leasing or financing have pros and cons, so it’d be best to consider the financial factors as well as your business needs. The above article gives helpful advice about going for a lease or buying (including through loan financing) your business vehicle.
Yes, you are still able to get tax benefits when opting for Novated Lease. 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.
I work for a mining company who offer novated leases (employee contribution method) to employees.
There are two companies nominated to manage the lease arrangements.
I have found a suitable vehicle and have had quotes for lease finance from financiers not connected with then novation management companies for this vehicle.
According to the information that is available from the novation management companies on their website, there appears to be no restriction on where the vehicle is financed. In other words, it appears that I can source cheaper finance from a finance company and have the vehicle lease novated through a management company.
According to the Novation management company representative, finance can only be arranged through them and not from an outside source.
Is this correct? Are novation management companies finance companies also or do they pressure consumers into taking their finance option?
As you enter into the novated lease agreement in your own name you should be able to choose the financier. The lease is a financial responsibility and if you change employers you’ll become responsible for the repayments, so it’s important to select a financier you’re happy with. However, your employer may only offer novated leases through these specific providers. It would be best to talk directly with your employer and explain that you’ve selected a different leasing company.
The company I work for as a sales representative offers novated leases. With a novated lease, you don’t pay the GST with the purchase of the car, so there is a saving there. I get a reasonably good car allowance as part of my salary, and currently have a loan, and pay all the other running costs out of my own salary. I do a PAYG tax variation so that I get the tax benefit upfront each week. With this way, you can only claim the interest part of the loan, and then claim depreciation and other running costs, which varies year by year.
Which works out better between a Novated lease, and the above method of loan for someone who uses the car for 95% business use?
Unfortunately, I’m unable to offer you personal advice, so I can’t advise you either way. However, it really would depend on a number of factors which would work out better for you cost-wise. These include running costs, your car allowance, etc. We have a few tools on finder that can help, including a novated lease calculator, but you may want to get some tax advice in this matter.
I’m about to start a 7-month stay in Australia as a visiting academic, with my family of 4.
Is it a good idea (and will I get approval) to lease a car for that period or should I directly look into buying 2nd hand?
Thanks in advance
David
Unfortunately, I can’t give you personal advice because it really depends on your personal financial situation, but it may help to break down the costs of each option to work out what may work best for you.
In terms of buying a car, there are several costs involved and you will also need to factor in insurance. If you wish to learn more about the expenses and costs of getting a car, please read our buying a car guide. With car rental, these costs will be factored into the rental cost. You may also be able to save with car hire coupon codes. Car-sharing services such as GoGet are another option to consider.
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Query : Lease or Finance
If I want to lease a $40000 car for 3 years for business use will this be treated as a loan as compare to Finance
If I Finance $30k with balloon payment of 10K at the end of 5 years what is my actual loan amount
$30K or $40K
I Want to know this as I will need a home loan 2years down the track.
what is the right approach to lease or to finance
Hi Rahul,
Thank you for your inquiry and sorry for the delay.
1. If I want to lease a $40000 car for 3 years for business use will this be treated as a loan as compared to Finance?
Well, that depends on the type of car leasing you would choose. You can either go for “operating lease”, “finance lease” or “fleet management”. These three options are well-explained from the link above.
2. If I Finance $30k with a balloon payment of 10K at the end of 5 years what is my actual loan amount $30K or $40K
As to the actual loan amount, this will depend on the company/lender you go with, their interest charged to the loan, and the term. You might also add to the total loan amount the fees involved in the loan. You can learn more and compare your car loan without balloon payments.
3. What is the right approach to lease or to finance?
As we’re a comparison website, I’m afraid we can’t really suggest or recommend, as it entirely depends on your business financial situation. Both leasing or financing have pros and cons, so it’d be best to consider the financial factors as well as your business needs. The above article gives helpful advice about going for a lease or buying (including through loan financing) your business vehicle.
Hope this helps.
Cheers,
May
I have salary packaged the full amount possible. Am I still able to get tax benefits if I choose to lease a vehicle.
Hi,
Thanks for your inquiry.
Yes, you are still able to get tax benefits when opting for Novated Lease. 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.
Hope this information helped.
Cheers,
Arnold
I work for a mining company who offer novated leases (employee contribution method) to employees.
There are two companies nominated to manage the lease arrangements.
I have found a suitable vehicle and have had quotes for lease finance from financiers not connected with then novation management companies for this vehicle.
According to the information that is available from the novation management companies on their website, there appears to be no restriction on where the vehicle is financed. In other words, it appears that I can source cheaper finance from a finance company and have the vehicle lease novated through a management company.
According to the Novation management company representative, finance can only be arranged through them and not from an outside source.
Is this correct? Are novation management companies finance companies also or do they pressure consumers into taking their finance option?
Hi Steve,
As you enter into the novated lease agreement in your own name you should be able to choose the financier. The lease is a financial responsibility and if you change employers you’ll become responsible for the repayments, so it’s important to select a financier you’re happy with. However, your employer may only offer novated leases through these specific providers. It would be best to talk directly with your employer and explain that you’ve selected a different leasing company.
I hope this helps,
Elizabeth
The company I work for as a sales representative offers novated leases. With a novated lease, you don’t pay the GST with the purchase of the car, so there is a saving there. I get a reasonably good car allowance as part of my salary, and currently have a loan, and pay all the other running costs out of my own salary. I do a PAYG tax variation so that I get the tax benefit upfront each week. With this way, you can only claim the interest part of the loan, and then claim depreciation and other running costs, which varies year by year.
Which works out better between a Novated lease, and the above method of loan for someone who uses the car for 95% business use?
Many thanks
Darren
Hi Darren,
Unfortunately, I’m unable to offer you personal advice, so I can’t advise you either way. However, it really would depend on a number of factors which would work out better for you cost-wise. These include running costs, your car allowance, etc. We have a few tools on finder that can help, including a novated lease calculator, but you may want to get some tax advice in this matter.
Thanks,
Elizabeth
I’m about to start a 7-month stay in Australia as a visiting academic, with my family of 4.
Is it a good idea (and will I get approval) to lease a car for that period or should I directly look into buying 2nd hand?
Thanks in advance
David
Hi David,
Unfortunately, I can’t give you personal advice because it really depends on your personal financial situation, but it may help to break down the costs of each option to work out what may work best for you.
In terms of buying a car, there are several costs involved and you will also need to factor in insurance. If you wish to learn more about the expenses and costs of getting a car, please read our buying a car guide. With car rental, these costs will be factored into the rental cost. You may also be able to save with car hire coupon codes. Car-sharing services such as GoGet are another option to consider.
I hope this information helps,
Elizabeth