Like all financial decisions, to buy or lease a new vehicle will differ depending on your individual circumstances. Whilst buying a car may be preferable and more beneficial than leasing to one person, it might not be to another.
With more and more people working from home, car leasing has experienced a boom in recent years in Australia. Leasing offers more flexibility than owning a car, but it also comes with its disadvantages. Let’s explore the two options so you can have a better understanding of what might be best for you!
Leasing a vehicle
The essence of leasing a car is the same as that of renting a home: you do not have full ownership rights over it, but you can still make use of it. When you lease a car, you make monthly payments to the dealer for an agreed length of time. Generally, these payments are generally lower than the loan payments for a new vehicle. At the end of the leasing agreement, you have the option to renew the lease, purchase the vehicle at its residual value or trade it in for another model.
The benefits:
- You need less money upfront
- Your maintenance costs are included in your monthly payment
- There is no obligation to buy at the end of the lease term
- You always get to drive a new car with the added benefit of a manufacturer’s warranty, meaning it’s unlikely your car will encounter any issues
- You can drive a better-equipped vehicle that you may not otherwise be able to afford with all the latest safety features
The disadvantages:
- You may only be allowed to drive a certain number of kilometres until you have to pay an access
- You aren’t able to do any modifications, as you don’t own the car
- It’s not an asset, as you don’t own the vehicle so won’t help with other borrowing power
- Over the long-term, it is more expensive than owning a car as the monthly payments are never-ending
Buying a vehicle
Everyone should be familiar with how to go about buying a car: you either make the purchase with a car loan or buy it outright. You are then able to do whatever you please with the vehicle as it’s completely yours. Buying still remains the most popular option amongst car owners, however, it does come with its own shortcomings.
The advantages:
- It is an asset – you own the car! This is beneficial when looking to get other finance such as a mortgage or other borrowing
- You can make as many modifications as you like, such as new wheels or a different paint colour
- As you own it, you can also sell it whenever you like.
- There are no driving kilometre limitations.
The disadvantages:
- You are liable for maintenance costs and any repairs once the car is out of warranty
- Your choice may be limited to your budget
- Cars depreciate in value a lot, which may not be ideal if you don’t plan on owning the car long term
The decision to buy or lease a new vehicle will depend on your individual circumstances. For most people, buying a car will be preferable as this is an asset that you own. However, in some circumstances where you change your vehicle every couple of years or drive a car for business purposes, leasing may suit you.
Like any financial responsibilities, if you are unsure, you should seek financial advice before making any decisions.
