Acquiring a car entails a major expense, so you need to evaluate multiple factors to make sure that you're doing the right thing. One important consideration is whether you're better off buying a car or leasing one. Both options have their pros and cons, and it's up to you to weigh which one fits your situation better.
Factors to Consider
Whether it is better to buy or lease depends on your unique circumstances, and the following are a few aspects you need to look into.
Your Cash Flow
If you find yourself running low on cash on a monthly basis, then leasing may be the wiser choice for you. It will allow you to have a car to use and still run a relatively healthier cash flow because the monthly payment required in a car lease will be lower than in a car purchase. You may consider taking a loan to pay for the purchase of a vehicle, but this option will result in a higher monthly cash outflow.
For example, if you’re paying a monthly payment of $600 to buy a car through a loan, the monthly car lease payments on the same make/model/year of car would only be about half of that amount, allowing you more cash to spend on your other needs.
Getting a lease usually requires a lower upfront expense or down payment than other car-financing modes and hence has a smaller impact on your savings.
Your Driving Requirements
A lease may prove to be more expensive if you drive for more than the maximum distance per year as specified in the lease agreement. Any extra kilometre would be charged separately and may cause the leasing cost to inflate. Leasing companies charge a specific amount for each additional kilometre driven, so you must consider this possible additional cost when making your decision.
Your Driving Style
If you tend to drive rough and frequently causes dents, damage, and wrecks to your car, then a lease may not be for you. Leasing companies charge fees in addition to the normal wear and tear, and this can quickly go up to three-month’s worth of lease payments.
If you plan on changing your car after a few years, then leasing might be a cheaper option as you can exchange your lease for another lease on a new vehicle. However, ending a lease agreement before its completion can end up costing you as high as six-monthly lease payments, hence make sure you intend on completing your lease agreement when you sign one.
However, if you plan on keeping your car in the long term, then buying it is going to be the more prudent option.
As mentioned, leasing allows you to easily change your lease for a newer car. While this may seem like the more expensive option, newer vehicles will also require less number of visits to the mechanic and car parts suppliers. So in the long run, this arrangement will turn out to be the more cost-efficient decision.
Leasing Vs Buying a Car
A car lease is a financial product whereby your lease provider will purchase the car for you and then allow you to use the vehicle for a fixed period in exchange for a monthly fee. If you wish to own the car, you would have to pay a lump sum residual payment at the end of the lease term, and the ownership of the vehicle will be transferred to you.
Here are the advantages and disadvantages of getting a car on a lease.
Low upfront cash requirements
Lease conditions can pose limits to the way you operate the vehicle
A budget-friendly option
Leased cars cannot be modified during the term of the lease agreement
There is no obligation to buy the car at the end of the lease agreement
You don’t own the car until you make the lump sum balloon payment at the end of the lease term to transfer ownership
You can lease out the latest car models
You can only drive the vehicle up to the maximum agreed number of kilometres per year, otherwise you need to pay more for the excess distance driven.
Instead of leasing, you can choose to take out a car loan or pay cash to buy a car. This option is exercised by many Australians as well, and it comes with the following advantages and disadvantages.
The car comes under your ownership from the very start
All maintenance costs must be paid by you, the owner
You are free to modify the car as per your wishes
The initial cost of buying a car is high
The car becomes your asset, and you can pledge it as collateral for another loan
It can be challenging to sell your car, at least at your specified selling price
You can sell your car at any time to raise funds
A car depreciates at a faster rate than many other assets
There are no limitations on driving the car
You have a limited choice of cars as more expensive models may prove to be unaffordable under this option
The truth is, whichever option you choose depends mostly on your needs and financial circumstances. For many Australians, leasing a car proves to be the more affordable option, while for others, buying a car is cheaper as they intend to keep it for a long time.
For more information on maintaining your car, visit www.carpart.com.au to access how-to guides and expert advice on car maintenance. Also, if you need car parts, our auto parts buying and selling platform can help you, so bookmark us for future reference or check us out now!
By Muhammad A. Lashari