Is it smarter to buy or lease a car?

Posted on Tuesday, February 11, 2014 - 00:00

Most advertisements for cars give you the price to own it outright; unless you haggle with the dealer, of course. But there is another option to get into a new car - leasing.

Leasing means you won't own the car, but pay to use it for a period of time before returning it to a dealer or financier. If you're looking to save money and change your car more often, leasing a car may be a smarter option than owning a car.

Why owning might cost you more?

When deciding to buy a car, most of us will have to get a car loan. We'll have to factor in monthly repayments, insurance costs, scheduled servicing and perhaps the odd repair.  

A leased car will be handed back after an agreed period of time, usually three years. That means you won't have to keep servicing it, paying insurance on it or repairing it if and when it breaks down or suffers structural damage. 

When you own a car, the depreciation, or lessening of value of the car, is passed on to the owner. In leases, the depreciation burden rests on the dealers' shoulders.

Bottom line is that lease payments are usually lower than monthly loan repayments and so are the upfront costs. 

Novated leases

One common type of lease available is the novated lease. A novated lease includes the lease cost of the car as part of a salary package. The lease payments are paid by your employer and helps reduce your taxable income. If you leave the company by choice or otherwise, the lease payments would then revert to you. At the end of the lease period, you can turn over the vehicle for a new lease, trade it in for a new novated lease or purchase the vehicle outright.

Upsides to owning - but not by much

If you own a car, you will have equity in the car. You may trade it in, keep driving it or even give it away. Some lease agreements might restrict the amount of kilometres you may drive. If you go over the lease's limit, you may have to pay extra mileage penalties. 

After the loan period is over you may have paid more than you would if you leased it. What's undeniable is that the value of the car is now significantly less than what you bought it for.

If you become smart with leasing, you can drive new and often nicer cars every three or so years and end up paying less than trying to own it over the same period. Talk to a financial professional to see what car lease options are available for you.

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