How to decide whether to buy or lease a car.
If you can't decide whether to buy or lease a car, you're not alone. Deciding on the best financing option for you is tricky, as both a lease and a car loan can be with you for a number of years. Cars are a significant expense whether you decide to lease or buy and the decision should be influenced by not only financial factors but also your individual needs. Read our guide below on what's involved with both leasing and buying and find out the best option for you.
Leasing and buying
Leasing a car involves you borrowing a vehicle under a contract that allows you to use it to drive an average number of kilometres annually. Leased cars are covered by warranty and the latest models are usually available. Leases also allow you to upgrade your car every two or three years.
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 outright.
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.
Ready to apply? Compare car leasing and car loans
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Thinking of buying or leasing 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. 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.