If you can’t decide whether to finance or lease a car, you’re not alone. Deciding on the best financing option can be tricky, as a lease or a car loan can be with you for a number of years.
Cars are a significant expense whether you decide to lease or finance 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 financing and find out the best option for you.
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.
Financing a car involves you purchasing a vehicle so that you own the vehicle outright. You can make your purchase using a car loan, which can be paid off in a period of up to seven years.
Leases usually require you to drive an average amount of kilometres annually, so you need to consider this before you apply.
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.
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.
Leasing companies may not approve you for a lease if you have bad credit history. If you have negative marks on your credit file you might want to consider speaking to a specialist broker to ensure better chance of approval.
This type of loan 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.
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 much higher fees and rates because it is a risk to the lender.
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 seemingly low rates but very high fees. Dealer finance usually comes with a balloon payment at the end that is designed to lower your ongoing repayments. Overall dealers tend to give you a discount on the vehicle and then claw their profit back by building in fees in the financing.
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 even as an employee.