The advantages and disadvantages between loans and leases
If you're in the market for a car, you'll probably find that many people, depending on their circumstances, will be quick to tell you that either buying or leasing a car is best. While buying a car with a loan, or with cash upfront, is fairly straightforward, leases can offer some benefits that may appeal. Weigh up the advantages and disadvantages of both before making any final decisions.
Buying a car with a loan – Advantages
- There's no question about being able to customise the car with the accessories you want. If you're buying a new car, you can specify the exact features you wish to include. Leased cars, on the other hand, may have constraints on the price or age of the car.
- There's no limit to the distance you're allowed to drive, whereas some leasing options include kilometer limits.
- You'll retain some resale value (more or less depending on how long you keep the car and how well you maintain it).
- You have more freedom to structure the loan to suit your personal finance needs (i.e. you can choose to place a deposit to reduce the required finance amount).
Buying a car with a loan – Disadvantages
- Negotiating a suitable price can be difficult. It's hard to know how much you should be paying. However, you can avoid this confusion by using a car buying service such as Macquarie Vehicle Select.
- Maintenance costs can be expensive - especially if you're buying a used car. Car leases, alternatively, can often come with a maintenance package.
- Eventually you will have to sell your car, which may be additional work for you if you choose to sell privately.
Leasing a car – Advantages
- Less cash is required upfront than if you were to buy.
- A single consolidated payment per month, that includes a maintenance package, might help with managing your cash flow.
- A novated car lease (salary packaged car) can be an economical option with potential tax benefits. Check with your financial adviser to see if this option is right for you.
- You might be able, depending on your type of lease, to hand back the vehicle at the end of your finance term.
Leasing a car – Disadvantages
- Leases are highly regulated in both loan structure and terms. This may seem like a nuisance depending on the primary use of your car.
- Some leased cars have mileage as well as 'wear and tear' conditions. Exceeding these conditions could lead to unforeseen costs.
- The primary use of leases is for commercial use and a lease may require salary packaging.
There are different forms of leases available in the market and these are governed by certain conditions and circumstances which may exclude you. We recommend that you talk to a financial adviser to see which solution is right for you.