deciding to lease or buy a car

Leasing vs buying outright: Should I lease or buy a car?

Information verified correct on December 7th, 2016

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.

Car loans that can help you buy a car

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Rates last updated December 7th, 2016
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Latitude Personal Loan (Secured)
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IMB Secured Personal Loan
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St.George Secured Personal Loan - Fixed Rate
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BankSA Fixed Rate Car Loan
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Have you considered renting?

If you don't want to lease, or buy a car - renting a car is also an option. Did you know Splend allow you to rent a car to become an Uber Parnter. Find out how you can sign up.

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.
ProsCons
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
  • 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.
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Related Posts

IMB New Car Loan

This fixed rate new car loans up to 2 years old features no early repayment penalties

RACV Car Loans

Enjoy this fixed rate new car loan offer from RACV. No ongoing fees.

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25 Responses to Leasing vs buying outright: Should I lease or buy a car?

  1. Default Gravatar
    Steve | August 22, 2016

    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?

    • Staff
      Elizabeth | August 23, 2016

      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

  2. Default Gravatar
    Darren | August 6, 2016

    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

    • Staff
      Elizabeth | August 8, 2016

      Hi Darren,

      Unfortunately I’m unable to offer you personal advice so can’t advise you either way, but it really would depend on a number of factors in which would work out better for you cost-wise. This includes 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

  3. Default Gravatar
    David | July 4, 2016

    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

    • Staff
      Elizabeth | July 5, 2016

      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 (learn more about the costs here). With car rental, these costs will be factored into the rental cost. You may also be able to save with a coupon code, which you can find on this page along with a guide on car rentals. Car-sharing services such as GoGet are another option to consider.

      I hope this information helps,

      Elizabeth

  4. Default Gravatar
    Rooster | June 1, 2016

    If I have salary sacrificed too much for my car, do I get the money paid back to, ie is it pit back into my salary and taxed accordingly?

    Thanks

    • Staff
      Elizabeth | June 3, 2016

      Hi Rooster,

      You’ll need to look at the terms of the agreement, but generally, if you do fewer miles than is budgeted or you have salary sacrificed too much, the money should be paid back to you. You’ll need to contact the company administering the lease.

      Hope this helps,

      Elizabeth

  5. Default Gravatar
    MiniMe | May 6, 2016

    I recently started a sales job (commission only, no salary). My 11 year old car died just a few days ago (had only done 77,000km in 11 years). So, I am in the market for a new one (I’m borrowing a car meanwhile). I have a few options:
    1. buy a new car outright (huge cash outlay from my savings. I want to get my lifelong dream car… a mini convertible)
    2. Wait and buy a demo mini
    3. Buy a used mini but risk costly repairs
    4. lease the mini
    5. approach my employer to contribute to a lease but considering I’m not paid a salary I don’t know that this is possible?

    Any suggestions?
    Thank you!

    • Staff
      Elizabeth | May 6, 2016

      Hi MiniMe,

      I can’t advise you which will be the best option for you as it will really depend on your own individual needs and financial situation. However, I can provide you with some general information and guides that will help.

      Using your savings is a great way to purchase a car and won’t leave you in debt except you won’t have a buffer to use for anything else, and you should also consider if you’ll need that money for anything else. In terms of demonstrator vehicles, this is also a great way to save – you can find out just how much in this guide here.

      A used car can also be a good chance to grab a bargain as long as you inspect the vehicle thoroughly before, we’ve written a used car checking guide that you can take a look at to familiarise yourself.

      Leasing the mini may also be an option if that works for your needs and lifestyle, but just keep in mind you won’t be owning an asset. In terms of a novated lease it will be up to you employee whether they offer this option to you, if they do this is an easy method for you to pay for a vehicle. You can find out more about this option here.

      I hope all of this information will be of use.

      Thanks,

      Elizabeth

    • Default Gravatar
      MiniMe | May 6, 2016

      Thanks so much Elizabeth. Much appreciated!

  6. Default Gravatar
    Dora | February 17, 2016

    If I get a novated lease on my car will I need to pay FBT?

    • Staff
      Elizabeth | February 17, 2016

      Hi Dora,

      It depends which method you choose when taking out a novated lease; the Fringe Benefits Tax method or the Employee Contribution Method. This page outlines those two options so you can choose the best one for your situation. You can also click on the ‘speak to a broker’ tab at the top of the table to see if you qualify to speak to one of our advisors.

      Hope this helps,

      Elizabeth

  7. Default Gravatar
    Tarun | December 31, 2015

    My current car is under novated lease, the lease expires in Feb 2015. There is a balloon amount which I need to pay to acquire the car.

    I want to keep the car for another 2 years, can you help me with a tool or calculator to decide if i should refinance or go in for another lease term?

  8. Default Gravatar
    Nat | December 27, 2015

    This information has been really useful, including the section on car loan rates through RACQ and the banks. Thank you !!!

    • Staff
      Jodie | December 30, 2015

      Hi Nat,

      Thanks for the feedback we are glad that you found the content so useful.

      Regards
      Jodie

  9. Default Gravatar
    Ari | November 4, 2015

    I am contemplating of purchasing a medium size car (i.e. mazda 3 or toyota camry) outright / no loans versus leasing.
    The car will mainly be used to travel to work, and occasional work purposes, site visits / meetings, etc.
    So, overall annually the car will probably travel around 12,000 km.
    Considering the cap servicing, petrol cost, insurance and rego; greatly appreciated if you would advise the better option between outright purchase and leasing.
    Many thanks.

    • Staff
      Elizabeth | November 4, 2015

      Hi Ari,

      Thanks for your question.

      Unfortunately it’s hard to advise on your best option as it’s really up to you. I’m also unable to provide you with personal advice. In generic sort of terms, buying a car outright will mean that you hold an asset, although that asset will be depreciating and will put a dent in the savings that you have. Taking out a lease means you wouldn’t hold an asset but you would still have use of the vehicle.

      It also depends what kind of leasing you are talking about – if you’re buying the car for work you could consider a novated lease, where you would pay for your car out of your pre-tax income. Depending on the type of work you do a chattel mortgage could also be an option for you.

      There are other factors that come into play here – the kind of car insurance you get will affect how much you spend, etc.

      It may help to actually put down the numbers to find out the most cost-effective method of obtaining and maintaining your vehicle, and then decide whether owning an asset matters to you.

      I hope the information on these pages will be of some use.

      Thanks,

      Elizabeth

  10. Default Gravatar
    Karen | June 28, 2015

    I drive over 50,000 kms a year as a sales rep needing a SUV for my working needs, am I better of leasing a car over purchase as I get a car allowance for my work.

    • Staff
      Elizabeth | June 29, 2015

      Hi Karen,

      Thanks for your question.

      I’m unable to recommend a specific option to you as your decision will need to be based on your own financial needs and situation. You can learn about leasing on the page above and weigh up the pros and cons in terms of your own situation. You can also read about commercial hire purchases on this page.

      I hope this has helped.

      Thanks,

      Elizabeth

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