Leasing a Car in 2023: This Is When Leasing a Car Is Smarter Than Buying Outright
If you are in the market for a new car, you basically have two options — either lease or buy the car outright. Deciding between leasing a car and buying one might be tougher than you thought. In most cases, it is not just a simple matter of finances; there is a lot more at play, including convenience, obligations, luxury, and car ownership responsibilities.
According to Statista and Research and Markets, more and more Australian motorists are warming up to the idea of leasing vehicles. The fleet and private car lease industries are growing incrementally year after year. But even so, a deal where you drive away in any car without a purchase commitment and trade it in for a new one after only two or three years might seem too good to be true.
There must be a catch — what are the pros and cons of leasing a car vs buying? More importantly, what is leasing a car? Well, there is no catch. Here are the basics of car leasing in plain black and white.
How does leasing a car work?
You are probably already familiar with how to go about buying a car using loans or other financing methods. But leasing is a lot different from buying. You basically ‘rent’ a car for a certain length of time, usually 2 to 4 years. Once the lease period expires, you can renew or extend the lease, purchase the vehicle at its residual value, or trade it in for a newer model.
The car dealer or car finance provider only asks for a monthly lease payment, which – depending on the lease agreement – can be paid by your employer, your business, or from your pocket.
Keep in mind that you have to be eligible for car leasing. Some of the qualification factors include your credit score, income, and employment history.
Car Leasing in Australia
Before leasing a vehicle, it helps to know all the options available to you. There are three general types of car leases in Australia, and each suits particular kinds of car buyers.
1. Novated Lease
A novated lease is a popular leasing arrangement among salaried employees. It is a three-way contract between an employee, an employer, and a car dealer. The dealer provides the car, and the employer contributes a consistent monthly repayment from the employee’s taxable income. The contributions also cover operational costs such as maintenance, fuel, and insurance.
A novated lease is quite economically sound because it lowers your taxable income and redirects funds that would otherwise be taxed toward financing the same car. Use our Novated Lease Calculator to find out how much you could save on a lease.
2. Finance Lease
Finance leases are mostly used by businesses. A financier purchases the vehicle and leases it to an organisation in fixed monthly repayments or instalments. At the end of the lease term, the lessee is obligated to pay the residual value of the car and assume its ownership or renew the lease for another run.
3. Operating Lease
An operating lease is similar to a finance lease, except in this case, the lessee does not have to make a balloon payment after the lease period expires. The vehicle is simply handed back to the financier at the end of the lease term.
Pros and Cons of Leasing a Car
Leasing is quickly becoming an alluring alternative to buying a new car, especially for the working class that can take advantage of novated leases. Many motorists seem to prefer subtle monthly lease payments rather than committing to car loans or making a massive investment in car ownership. However, there are two sides to leasing cars:
- You are not paying GST on running costs and the purchase of the vehicle.
- Large discount on the purchase price due to the buying power of the (Novated) Leasing company.
- No deposit is required.
- There is no obligation or commitment to buy the car after the lease period ends.
- Enjoy stress-free car maintenance and upkeep.
- You save money on taxes via novated leases.
- You get to drive high-value cars that you would otherwise not afford.
- You do not own the car and therefore cannot use it as an asset, for instance, to secure a loan.
- In the long run, lease repayments might be more expensive than buying a new car in the first place.
- Lease cars have strict mileage caps and heavy penalties for exceeding set limits.
- Terminating a lease contract prematurely may attract hefty fines.
Pros and Cons of Buying a Car
Buying a car presents several benefits and privileges as well. But there are also some conveniences and financial shortcomings tied to purchasing and running your own vehicle.
- Once all the payments are made, the vehicle is solely yours.
- You can modify and sell the car whenever you like.
- There are no driving restrictions (the same applies to novated leases).
- You can get some serious discounts if you buy at the right time of the year.
- However, you can get the same discounts in novated lease.
- You have to deal with high monthly payments and substantial upfront investment in buying a vehicle outright.
- You are responsible for the vehicle’s upkeep and running and maintenance costs.
- You have to bear the vehicle’s depreciation and hustle for good resale value.
- Your purchasing power may limit your vehicle options.
- Bill Shock – registration renewal/major service/annual insurance bills pop up at unexpected times.
Leasing vs Buying a Car: Which Is Right for You?
For some motorists, the decision to lease is purely based on affordability, while for others, it is a matter of priority or convenience. Most of those who opt to buy do it to enjoy the privilege of owning a used or new car or an emotional bond with the vehicle. For the most part, it comes down to you to justify why leasing a car is smart or why leasing a car is a bad idea.
That said, it is important to weigh your options carefully and make all the necessary considerations when deciding to either buy or lease. Examine your lifestyle, job situation, and financial status to determine the right way to go. Sometimes you have to make sacrifices in some places, such as reducing your spending on branded gym wear or dining out less often.
If your commute is only necessitated by a temporary job or contract, then it probably makes more sense to lease rather than buy. On the other hand, versatile and long-term transportation needs might require a more permanent solution. Plus, there is no problem with buying one car and leasing another if the merits of both arrangements complement each other.
If you go for a lease, it is best first to understand what you are getting into. Read the fine print thoroughly before signing on the dotted line. Make sure you understand and agree with all the lease terms and conditions, including details about insurance, pricing, tax benefits, warranties, penalties, and other particulars.
Get a Quality Novated Lease from the Team at Easi
We are of the firm belief that novated leasing is a better alternative than a standard car loan. If you’re looking for a change from having to constantly compare car loans to find the best price, our team can certainly help.
Easi is a finance company with 20 years of experience in the industry of car leasing – meaning we can use our knowledge to deliver effective business car solutions every time. Our wide range of vehicle lease options come under flexible contract terms ranging from utes, to large SUVs, to hatchbacks and more.
To find out more about how Easi can assist with your novated leasing – or to discuss business car leasing options, contact one of our staff today.