Car Leasing Vs Buying: Pros and Cons
January 15, 2023
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Are you trying to decide whether leasing or buying a car is your best option? Making this decision can be overwhelming. After all, it’s not just about getting the best deal – other important factors are also involved.
From understanding your budget and preferences to knowing when to buy or lease, making a final call can be challenging, especially for someone who has never been through it.
But worry not! This blog post will go over the pros and cons of both options. So that you can make an informed decision that works best for your lifestyle and long-term goals. Let’s discuss more on a car lease in Perth and all types of lease plans for Western Australia!
Types Of Car Leasing In Australia
Leasing offers an affordable way to access a vehicle without paying out large amounts upfront or committing in the long term. But with so many different types of car leasing available in Australia, which one best suits you? Here are the different lease options.
Novated lease
A Novated lease is one of the most popular forms of car leasing. It allows an individual to purchase a car and have the repayments deducted from their salary before tax.
This leasing arrangement benefits both the employer and the employee. The lease offers employees a convenient way to car finance without a large outlay upfront. It also relieves employers of managing employee car benefits.
Operating lease
An operating lease is a rental agreement between a driver and the leasing company. The latter provides a vehicle for an agreed period with scheduled payments.
This can be seen as more cost-effective than buying outright. You only pay for the depreciation rather than the full vehicle cost. It is ideal for business owners who need to manage their cash flow. There are no large capital outflows required at the start of the agreement.
Finance Lease
Finance leases are targeted at businesses that wish to own a car but avoid the costs associated with purchasing outright. The business makes regular payments over an agreed period with the option of owning the vehicle at the end of the lease term. For businesses with cash flow issues, finance leasing provides a more affordable way to finance their vehicles.
Lease or Buy a Car: What’s The Difference?
It’s an important decision as it may impact your budget and financial plans. Leasing and buying have advantages, but they also come with drawbacks depending on each person’s circumstances. Read on to discover the major differences between leasing and buying a car before committing either way!
Pros and Cons of Leasing
Pros of Car Leasing
Lower Monthly Costs
Leasing can be a great way to save money on expensive monthly payments. It usually involves a much lower upfront cost than buying a car outright.
You can get the vehicle you want without draining your bank account. On top of that, monthly lease payments are typically lower than loan repayments on purchasing the same car. This means you get more bang for your buck and long-term savings on vehicle expenses.
A New Car Every Few Years
For those wanting the latest and greatest, getting a new car every few years is the way to go. Leasing lets you enjoy up-to-date technology, such as driver assist features and advanced entertainment systems. Plus, you can choose from various makes and models to always get your dream car. And at the end of the lease term, it’s time for a brand new ride!
No Large Upfront Payment
That there is no large upfront payment required. You need to make a relatively small down payment and fill out some paperwork, no matter the value of your chosen car.
This makes it much easier for people to get into their dream car without straining their monthly finances. And when your lease ends, you’ll just be faced with the cost of returning it. Or even buy it if you don’t want to shop around again.
Consolidated Repayments
Consolidated repayments allow you to pay for your car and associated costs conveniently in one payment. This could be through your employer or direct from your salary pre-tax. You don’t have to worry about a large initial payment or trying to keep up with multiple car bills throughout the year. Hence helping you budget simpler and with more control.
Tax Benefits For Novated Leases
Taking out a novated lease can benefit you in terms of tax. Your pre-tax salary will cover your repayments and lower your taxable income. Plus, you don’t have to pay GST on the vehicle purchase price as it’s considered part of your salary package. All these savings add up, so it could be worth considering a novated lease.
Cons of a Car Lease
You Don’t Own The Car And Can’t Modify It
Regarding car leasing, you don’t own the car and assume only temporary responsibility. You can only make modifications or use it to secure a loan with approval from your vehicle finance provider. You get to enjoy the convenience of borrowing without the commitment of ownership.
Mileage Restrictions
Mileage restrictions are a common feature of many finance product agreements. These limit how far you can travel with your vehicle in a given period. And if you exceed them, then charges may be applied. Understanding these rules is essential if you want to be compliant and avoid any extras at the end of your chattel mortgage.
Administration Fees And Other Charges May Apply
Car leases may come with additional fees, so it’s important to review the contract before signing. Administration costs may be built into your repayments, and you may also face hefty costs if you terminate early. Be sure to compare rates between car leases and other loan options, as they can vary greatly. It pays to know what you’re getting into when committing longer term.
Large Residual Value At End Of Lease
Leasing a car often means paying the residual value when the lease ends. This amount can be substantial and determined by factors such as the car’s original cost and the lease length. At the end of the lease, you must either renew it, buy out or trade in the car to avoid paying this cost. Payment for the residual value may be covered by selling your car if you choose not to keep or renew it.
Pros And Cons of Buying a Car
Buying a car is an exciting prospect, but before making the purchase, it’s important to have all the information. Considering both the pros and cons of buying a car can be beneficial. This section explores some of these benefits and drawbacks!
Pros of Buying a Car
You May Save
It is possible to save money on your car purchase by buying it outright. Choosing this option can significantly reduce the cost of the car over time because you won’t be required to pay any interest fees. Buying a car without financing could save you more in the long run.
Ownership Rights
Owning a car is a great achievement and can bring freedom, convenience, and a sense of accomplishment. Owning your vehicle outright is one way to display these feelings, as it allows you to have complete control over your car’s use.
You can also utilize the asset when seeking other financial opportunities like loan borrowing. When buying a car with a loan, its title may still be yours. But with an ‘interest’ in the vehicle until the debt is settled. Once fully paid off, however, all will belong to you; only then can you truly say that you own your car.
Get To Choose From a Variety
More choice equals more control. If you’re looking for a vehicle, buying gives you an array of different makes and models. And the ability to compare loan rates and terms to get a better deal than if you were leasing. Shopping for a car has never been this easy – with more choices, your options are unlimited!
Freedom Of Modification And Unlimited Mileage
Owning a car outright gives you freedom. You can modify your vehicle however you’d like without worrying about mileage limitations. As this offers much greater flexibility, there is no limit to the level of customization that could be done to the car. However, it is important to keep in mind potential laws or restrictions put in place by your insurer when making any changes.
Cons Of Buying A Car
Potential to Depreciate
Depreciation is a natural decline in the market value of an item due to wear and tear age, or other factors. For example, owning a car will eventually become worth less than what you initially paid, making it more difficult to resell. Many people opt to lease a car that can be upgraded at the end of the contract without facing a large financial loss.
Higher Initial Costs
Higher initial costs can be a drawback when purchasing a car. You may need to save for a long time before you can cover the large sum required to make an upfront purchase. Or if taking out financing, you will have to make large monthly loan payments. Depending on the type of car and its expected life span, this is sometimes well worth it in the long run.
Multiple Bills To Pay For Upkeep
Paying to keep your car running is more complex than one bill because of all the different maintenance-related costs. Remember to budget monthly payments like insurance premiums, registration and license fees, and occasional repairs. Or replacement services like oil changes, new tires, and emergency payments in the event of an accident. These running costs can add up quickly, so account for them in your monthly budget!
No Model Upgrades
No model upgrades are a definite downside of buying a car—once you choose the one you want, there is no going back! If you opt for a lease instead, there may be opportunities to upgrade to the newest model when your contract expires. Leasing offers that flexibility. It may be worth considering if you like the idea of always having the latest technology in your ride.
Which Is Which? Leasing Or Buying A Car?
Making a decision on leasing or buying a car is important, as it will significantly impact your life and wallet. Leasing a car involves making regular payments over a certain period. While still having the option to return the car or upgrade to another vehicle once your lease is up.
When you lease a car, you are taking out a loan and renting the car for the term of the loan. When you buy a car, you become the vehicle owner after all payments have been made and all other requirements have been satisfied.
If you’re looking at leasing vs. buying, there are several factors to consider. The most obvious is cost: leasing usually results in lower monthly payments than buying outright since no return date or upgrade is involved.
Also, leasing may be more attractive if you have bad credit. Or limited funds available because it typically requires less capital upfront.
When you buy a car, you own it outright and can generally sell it whenever you want. This is only sometimes possible with lease contracts due to restrictions outlined in your lease terms by lease and fleet management.
Other factors to consider when car leasing vs buying
Another factor to remember when deciding between leasing and buying is how long you plan to own the vehicle. If you only intend on keeping it for two years or less, then leasing may be more advantageous than purchasing.
It might be cheaper overall if you plan on keeping your vehicle for more than two years. Then buying might be better due to potential savings over time.
When considering whether to lease or buy a car. Think about how often you drive and what type of driving style best fits your lifestyle (commuting vs. pleasure).
Suppose you’re an avid traveller who goes places frequently. Leasing provides flexibility. Switching cars every few years may suit that lifestyle better than investing in one standard car for many years.
However, commuting long distances regularly is part of your routine. Owning one reliable vehicle would likely save money in gas costs versus having multiple leased vehicles over time.
Ultimately both options offer advantages depending on individual needs and preferences. So carefully consider both options before making decisions regarding getting yourself a set on wheels!
Conclusion
So, what’s the final verdict – should you lease or buy your next car? The answer depends on your circumstances and driving habits. Leasing could be a good option if you trade in your car for a newer model every few years. And, of course, if you don’t mind making monthly payments.
Buying might be the way to go if you plan on keeping your car for a long time and would rather own it outright. Regardless of your route, research first and ensure you understand all the pros and cons before signing on the dotted line.
If you’re considering finance for a used car, our team can help. Mad Man Motors have multiple finance options and a car online calculator to break down the costs for repayments.
Apply for a finance application today and our friendly staff will be able to help you find the used car you want.
