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Leasing vs buying a car in Australia: Which should you choose?

Jodie Humphries avatar
Jodie Humphries
- 4 min read
Leasing vs buying a car in Australia: Which should you choose?

If you’re in the market for a car, you may wonder whether it’s best to buy one right away or if it’s better to lease one and skip the upfront expense that ownership involves. It can be difficult to choose between buying or leasing a car, so it’s important you weigh up the benefits and disadvantages of both options. 

The difference between a car loan and a car lease 

Leasing a car is another way to describe renting a car, and it may allow you to have access to a vehicle for a specific period, for a rental fee. You pay this rental cost every month for as long as you use it. When the lease tenure ends, you may be able to buy the car or lease another one. 

You don’t own the vehicle when you lease a car, but instead you may use it when you need it. Many financiers offer car leases for between two and five years. You can opt for a basic lease, in which you have to pay for the maintenance, insurance, and registration of the car, or an an all-expenses-paid lease 

Another popular option available when you lack the funds to purchase a car outright is a car loan. When you take out a car loan, the lender will charge you interest for the duration of the loan term (between 1-7 years). You may then make weekly, fortnightly or monthly repayments to repay the loan amount.  Car loans are typically secured loans, meaning the vehicle is used as collateral against the loan and may be seized by the lender in the event you default on the loan.

When is a car lease better than a car loan?

If you plan to live in a new area for a short period of time but need a car, you may prefer to lease one rather than go through all the formality or hassle of ownership.

You may also find a car lease to be a good option if you like to change models frequently or wish to try before you buy. This way, you can get the latest technology and safety features in the car you drive. 

If you don’t want to make the financial commitment that repaying a car loan (with interest) requires, a lease may also be an option to consider. Furthermore, compared to a car loan repayment, the amount you have to pay for the lease is often lower, leaving you with liquidity for other needs. 

Finally, some lease agreements come with maintenance charges included, making it easier to budget for the total expenses on your car. 

Advantages of a car loan over a lease

When you take out a car loan, you are able to own the vehicle outright and make more flexible decisions about it. Even when you have a car loan, you can still sell your car. This may give you a bit more flexibility if your circumstances change. Also, you may be able to claim the depreciation of the car as a tax deduction if it’s a business expense. 

If you plan to use the car for many years, then a car loan may work out to be a better financial option than a lease. You also have the flexibility to choose an insurance policy that suits you, unlike a lease agreement where the owner may specify one.

Is it easier to get a car loan or a lease?

Taking out a car loan is a major financial decision, and you will need to meet the lending criteria set by the car loan lender to gain approval. This can include being an Australian citizen or permanent resident, having a good to excellent credit score and meeting a minimum income requirement. 

Because of this, and depending on the lender, you may be able to get a lease with less paperwork than you’d need for a car loan. Similarly, if you cannot meet the eligibility criteria of a car loan, such as by having a poor credit score, it may be easier to get approval for a lease than a car loan. 

However, if you subscribe to thet addage that “rent money is dead money”, you may feel that it’s better to make loan repayments to own the asset outright than make lease repayments and never own the vehicle outright. 

Both leasing or owning a car will give you access to a vehicle, but it’s a matter of what works best for you. Remember to compare the terms and fees when making your choice. 

Disclaimer

This article is over two years old, last updated on February 28, 2022. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent car loans articles.

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.