Car leasing is a popular way to finance a vehicle without buying it outright. Whether you’re a business owner who wants to turn over your commercial vehicle stock regularly or an individual who can use one to reduce your taxable income, leasing is a cashflow-friendly way to access your new or used car.
There are several types of car leases available in Australia, each suited to different circumstances depending on whether you're leasing through a business or your employer, so it’s important to know how they work before you start your application.
What is a car lease?
A car lease is a finance arrangement that lets you use a vehicle without needing to own it. Instead of you buying the car, the leasing company purchases it and leases it to you for a set term, typically up to five years. During this time, you make regular payments to use the vehicle, much like renting.
What happens at the end of the term depends on which type of lease you've taken out. You might pay a residual amount to own the car, which is a lump sum payable at the conclusion of your leasing term. Alternatively, you may have the option to hand it back to the leasing company or roll into a new lease.
Types of car lease
There are three main types of car lease available in Australia:
You can see how each option works and the similarities and differences between them in the following table:
When might you take out a car lease?
There are a few common scenarios where a car lease makes sense:
- Running a business that leases vehicles: if you're a business owner who wants fully tax-deductible payments and doesn't want vehicle ownership tying up capital, a finance or operating lease can be a practical way to access cars, vans or other eligible commercial vehicles.
- Refreshing your fleet regularly: businesses that want to turn over their vehicles every few years without the hassle of selling them often lean towards an operating lease, since there's no residual to be paid.
- Reducing your taxable income as an employee: if your employer offers salary packaging, a novated lease lets you use pre-tax income to cover a car for personal use, which can bring meaningful tax savings.
- Wanting your on-road costs covered: most operating and novated leases, as well as some finance leases, bundle costs like registration, servicing and insurance into your payments, so you aren’t budgeting for them separately.
- Not wanting to own the vehicle from day one: with a finance or operating lease, the leasing company holds ownership for the term, which suits businesses that would rather not carry a depreciating asset on their books.
How much does it cost to lease a car?
The cost of a car lease depends on several factors, including:
- Car price: a higher purchase price generally means higher lease payments, though you're only paying to use the car rather than financing its full value.
- Lease term: shorter terms usually come with higher monthly payments, while longer terms spread the cost out but can mean paying more in interest overall.
- Interest rate and fees: the interest rate and any lease fees attached to your agreement directly affect how much you'll pay each month.
- Residual value: a higher residual value lowers your monthly payments, since more of the car's value is recouped at the end of the lease, but it also means paying more interest over the term.
- Type of lease: fully maintained leases, where on-road costs are bundled in, typically cost more per payment than non-maintained leases. That doesn’t necessarily mean they’re more expensive, as you’ll still be paying those on-road costs, but the payment itself is higher.
- Distance driven: the more kilometres you drive each year, the more you'll typically pay. Drivers travelling 10,000km or less annually will usually pay less than those closer to 40,000km.
- Tax-deductible portion: with a finance or operating lease, you can generally claim at least 51% of your payments as a tax deduction, or up to 100% if the vehicle is used exclusively for business.
You can use Savvy's car lease calculator to work out your estimated monthly repayments and total interest based on your car's purchase price and residual value.
Car lease pros and cons
Pros
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Lower upfront costs
You won't need a large deposit to start driving, unlike buying a car outright. That also means it’s easier to drive a newer vehicle than you might otherwise be able to afford or finance.
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Simpler budgeting
With on-road costs often bundled into fully maintained leases, you're less likely to face unexpected expenses during the term.
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Tax benefits
Finance and operating leases offer deductions on business use, while novated leases reduce your taxable income through pre-tax payments.
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Flexibility at lease end
Depending on your lease type, you can hand the car back, pay the residual to own it, or roll into a new lease.
Cons
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You don't own the asset
Your payments go towards using the car or equipment, not owning it, so you won't have anything to show for it until you pay the residual.
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Kilometre limits
Most leases cap your annual kilometres, which can mean extra fees if you go over that cap. This can limit your usage more than a car loan would.
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Condition requirements
You'll usually need to return the asset in good condition or cover the cost of repairs and excess wear.
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Early exit costs
Ending a lease before the term is up can attract early termination fees, limiting your options if you change your mind halfway through.
How to get a car lease with Savvy
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Complete our application form
You can apply for a car lease quickly and easily online with Savvy. Tell us about your personal and/or business finances.
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Submit the required documents
We may require you to submit further documentation to verify details about you or your business.
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Speak with your broker
One of our friendly brokers will reach out to you to discuss your options once we’ve reviewed your profile.
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Choose your vehicle
If you haven't already found a car, our in-house car broking team can help you find a new or used vehicle from its national dealer network.
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Receive approval and sign off
We’ll let you know if your application for a lease is approved, after which we’ll send you all the final documents to sign.
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Drive away
Once everything is settled, all that’s left to do is drive away!
Why apply for a car loan with Savvy?
Car lease vs loan
A car loan is a type of finance that allows you to buy a vehicle outright. You’ll borrow a lump sum from a lender and repay it, with interest, over an agreed term. In most cases, the car itself is used as security for the loan. Unlike a lease, you own the car from the moment you drive it away. There are both consumer car finance products and those for commercial use available.
Here's how a car loan compares to a car lease:
Is it cheaper to lease a car or buy one with a loan?
Whether leasing or a loan works out cheaper for you depends on your interest rate, fees, term length and what you plan to do with the car at the end of the agreement. Lease payments are usually lower month to month than loan repayments, since you're only paying for the use of the car rather than its full value. However, cheaper payments don't always mean a cheaper outcome overall.
If you want to own the car outright as cheaply as possible, a loan is usually the better option. If you'd rather keep your repayments lower and have the flexibility to change cars regularly, leasing may suit you better. If you’re unsure which option works best for you and your finances, it’s worth speaking to an accountant or financial professional before diving into the application process.
