One of the greatest things about today’s time is that we have a lot of options for almost everything. A few years ago, if you needed a car, you would have to buy a new or used car. But now, you also have the option of leasing a car.
The Australian automotive industry is also catching up to this new trend. With both new and used car prices skyrocketing, more and more Australians are warming up to the idea of leasing. Until 2018, leasing facilities in Australia were used mostly by car rental companies. However, since then, private leasing has seen a surge.
So, what exactly does leasing a car entail and is it better for you to lease rather than buy a new car? Let’s find out.
What does Leasing a Car Mean?
In the simplest terms, leasing a car means renting it for 2 to 5 years. So, you basically get to use the car for the period of the lease and once the lease is over, you can either renew it, purchase the car at its residual price or lease another car. Seems like a sweet deal, right? But, what’s the catch?
Well, there are certain limitations. First, you need to be eligible for car leasing. The eligibility factors include credit score, income, etc. Next, there are also certain mileage caps and limitations regarding the condition of the car. And most importantly, you don’t own the car, you are just renting it.
However, on the upside, you get to use the latest and safest model of a car by paying monthly instalments which can be far lower compared to an EMI on a car loan. The monthly lease payment can either be made by your employer, your financer, the car dealer or by your own pocket, depending on the type of lease you choose.
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Types of Car Leases?
This brings to us the type of car lease. In Australia, leasing a car can take one of the following forms.
If you are a salaried employee of an organization, check if your company offers Novated leases. Novated lease is a contract between you, your employer, and a car dealer. Your monthly lease payments are deducted from your taxable income by your employer and paid to the car dealer. Apart from your monthly lease payments, these deductions will also include car maintenance cost, cost of fuel and insurance. This is a good option for salaried employees as it helps you lower your taxable income.
If you are self-employed or own a business and need a car for work, this one is for you. In a finance lease, a financer, usually a car dealer purchases a car and leases it to you against monthly payments of a certain amount. And once the lease term is over, you must either purchase the car at its residual value or renew the lease.
The only difference between a finance lease and an operating lease is that in an operating lease, you are neither obligated to purchase the car nor renew the lease after the lease period expires. Once the lease period is over, you can simply return the car.
What are the Advantages of Leasing a Car?
Due to the pandemic, the world including Australia has been seeing a longer wait period for buying new cars. And on top of that, the prices of used cars are also quite high. All this has led many Australians to consider leasing a car instead of buying it. One of the biggest advantages of leasing is that you can even lease a car model that you couldn’t afford if you were to purchase the car. Let’s look at some other advantages
- If you are using Novated lease, your lease payments and car maintenance cost is deductible from your taxable income
- There are huge tax benefits for business owners as well
- You don’t have to pay GST on the purchase of the vehicle
- You don’t need to pay a huge deposit
- Affordable monthly payments
- Other than in finance lease, there’s no commitment to purchase the leased car.
- You can upgrade to a newer model once the lease period is over
- You don’t have to worry about maintaining the car in its old age
- No need to worry about the car’s resale value
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What is the downside to Leasing?
There are always two sides to a coin. So, let’s have a look at the flipside of leasing a car.
- In some cases, leasing costs you more than buying a new car in the long run
- You don’t own the car
- You can’t use the car to secure a loan
- You can’t modify the car
- There is a mileage cap and going over it attracts huge penalties
- You need to keep the car in a very good condition
- Terminating the leasing contract during the lease periods will cost you dearly
- You will still have to spend money on replacing car parts when the need arises
What are the Upsides and Downsides of Buying a New Car?
Buying a new car entail either paying the full price of the car upfront or paying monthly instalments on a car loan. The biggest upside is that you own a car and do whatever you want to it. On the flip side, it is a huge financial commitment. Let’s look at the pros and cons in detail.
The Advantages of Buying a New Car
- You own the vehicle
- It is an asset and can be used as a mortgage for financial purposes
- You can modify the car as and when you like
- There are no mileage or other restrictions on driving
- You can sell the car whenever you want to
The Disadvantages of Buying a Car
- It’s a huge investment
- You need to pay a large deposit even when you are availing of a car loan
- You have to bear the depreciation and the cost of car maintenance
- Your options are limited based on your budget
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Leasing a Car or Buying it – What’s the Right Choice for you?
A lot of people prefer leasing over buying a new car simply because it seems to be a more affordable option. Others choose it because there’s no long-term commitment. And yet a lot of people refrain from leasing because they don’t want to miss out on the feeling of owning your car.
So, in the end, it all comes down to personal preferences and circumstances. The first and foremost thing that you should consider while choosing between buying and leasing a car is your finances. Firstly, you need to see if you have enough savings. You will need a significant amount of money for the down payment of a car if you choose to buy it. On the other hand, you don’t need to pay a large amount as a deposit for a lease.
Next, you need to consider the monthly payments. When you lease a car, your monthly payment is lower as you are just paying the cost of the car’s depreciation. However, the EMIs of your car loan might be significantly higher. So, you need to assess if you can afford it.
Apart from money, you need to consider how much and how well you drive. Like we already mentioned, car leases have a limit on how many miles you can drive. Moreover, you need to also pay attention to the upkeep of a leased car. Or else, you might have to pay fines. So, if you are someone who drives a lot and is rough on the car, leasing might not be for you.