What’s right for you? As with most things, there are pros and cons to both options, and what you decide depends on your personal situation. To help you determine this, we’ve put together all the info you need to know about car leasing versus buying.
WHY PEOPLE LEASE
The most common reasons people lease are because they either use the car for business purposes or they prefer a new car every few years and are comfortable to continually pay finance terms for each car (never owning a car outright).
At the end of the term (up to five years) they owe a residual amount (called a balloon payment) that transfers to the new car. Once they have the new car, they continue to pay a monthly repayment. This means they never own their cars outright.
CAR LEASING VERSUS BUYING
| LEASING | BUYING |
| FINANCE OPTIONS | |
| • Novated lease
• Operating lease |
• Car loan
• Mortgage top up • Personal loan |
| REPAYMENTS | |
| Smaller monthly repayments over a shorter loan term. TIP: Use a Car Lease Calculator to calculate your repayments. |
Higher monthly repayments and/ or a longer loan term. TIP: Use a Loan Calculator to calculate your repayments. |
| INTEREST RATES | |
| Typically cheaper. | More expensive unless topping up a mortgage. |
| FINANCE TERMS | |
| Maximum 5 year term | Long terms available (dependent on how you nance). |
| END OF TERM | |
| Owe a residual amount (called a ‘balloon’), typically up to 40% of the original purchase price of the car. Depending on the type of lease, at this point you either have to return the car, pay out the residual amount or trade in the car and commence a new lease. | Own the car outright. |
| MAINTENANCE | |
| Newer cars cost less to maintain, however some lease options manage the cost for you to help you budget but, as a result, place some restrictions on your maintenance options. | Your responsibility and cost. The longer you keep the car, the more you will spend on maintenance and repairs as more will need to be done to an older car. |
| UPGRADES | |
| Upgrade your car every 2-5 years | No upgrades |
| PERSONALISATION | |
| Restrictions can be placed on modifications such as tow bars, window tinting and roof racks. | Freedom to modify. |
| BUSINESS | |
| The percentage of business use can be claimed for all expenses. As cars are typically kept for a shorter period, the amount of depreciation claimable is higher. | The percentage of business use can be claimed for all expenses; however, the amount of depreciation that can be claimed reduces the longer a car is owned. |
REAL-LIFE EXAMPLE:
So what does that look like in a real scenario? Below is an snapshot of leasing versus buying for a Toyota Camry:
| Toyota Camry | Lease | Buy |
| Purchase price | $30,490 | $30,490 |
| Loan Term | 5 years | 10 years |
| Interest rate | 6% | 8.5% |
| Monthly repayment | $412 | $378 |
| Residual | $12,196 (40%) | $0 |
| Maintenance costs | $3,292 | $10,846 |
| Depreciation claimed as a business expense (60% business use) | $3,659 p.a.
|
$2,613 p.a. (max. 7 years claimable) |
OK so let’s explain this:
If you buy the Toyota the long loan term means the monthly repayments work out slightly cheaper than leasing. You’ll also own the car outright at 10 years. The downside is the extra maintenance which negates the lower finance payments and, if using the car for business, you can’t claim as much depreciation.
If the car was leased your monthly repayments are slightly higher and at the end of 10 years you still owe over $12,000! However, in that same period you’ve actually had 2 new cars (with a nifty new car warranty each time) and as a result have spent less on maintenance. And if you can claim for business you’ve claimed more than double in depreciation.
WHAT’S RIGHT FOR YOU?
Taking everything into consideration, whether you buy or lease will come down to how long you intend to keep your car, whether you can claim some expenses for business purposes and whether you want to eventually own the car outright.
Before making a decision, it’s worth weighing up the costs against each option using a Car Lease Calculator and Loan Calculator.
As a general rule however, leasing is usually ideal for people who can claim business expenses, want lower monthly repayments and/or want to turn over their car on a regular basis.
Ultimately, whether you buy or lease will come down to your personal requirements and preferences, but hopefully we’ve armed you with the tools to get to that decision.
For more auto related tips and tricks, head to the Blue Toro Blog.
