Like the age old battle between buying and renting your home, leasing a car and buying a car each have their pros and cons. If you’re in the market for a new car, but don’t want to buy it outright, a car lease could be a competitive option.  

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

The right decision for you will always depend on your own financial situation. When you’re comparing car loans and car leases, you should consider a number of factors including your income, employment status and whether you're willing to pay for a car that you won't own. 

What is the difference between a car lease and a car loan?  

Car leases are essentially rental agreements. However, unlike holiday car rentals, car leases can last between two and five years. A short car lease term requires higher monthly payments, but you’ll be able to move to a new lease and upgrade to a new model sooner. 

The monthly payment for a long term lease is typically lower than the monthly repayment to buy the car outright, which is why long term car leases can be appealing.  However, other regular expenses attached to a leased car can be more expensive, particularly insurance, which can often be an expensive policy chosen by the dealer. 

Unlike owning a car, leases come with a number of restrictions on use, including maintenance and alterations. Plus, you only possess the car temporarily - you will never own it.  

Car loans, on the other hand, involve borrowing a principal amount to cover the cost of buying the car. You then pay back this amount plus interest and any fees and charges over an agreed loan term. Car loans can be both secured and unsecured, and the borrower decides whether they would like to use collateral against the loan to reduce the risk to the lender. By doing this, you will be able to get a lower interest rate, so many borrowers choose secured car loans. 

Car leases, however, are always secured by the car itself as you do not own the vehicle outright. This is why if you get a car lease, you will have much cheaper repayments than those under a car loan. 

 

Insider tip

Don’t forget that while car lease repayments may be cheaper than loan repayments, you are not building any equity in the car you are leasing, and you will not own the car outright. If you decide you want to buy the car, your lease repayments do not count toward the price of the vehicle.  

Compare the pros and cons of a car lease 

Pros
  • Repayments: A leased car may have cheaper repayments than if you took out a car loan. This is useful if you are an undisciplined saver. Leases also often have lower interest rates than car loans.
  • Budgeting: You know what the repayments will be each month, as these will have been agreed with the lender, and they are often cheaper than car loan repayments.
  • Package deals: Many lease packages come with maintenance, repairs and insurance included. If the repairs are mechanical faults, not consumer driven faults, the car’s owner, not you, needs to pay for them.
  • Potential ownership: You may be able to own the car outright at the end of the lease period, or enter into another arrangement with the finance company.
  • Latest models: You can switch your car every few years to upgrade to the latest model.
Cons
  • Early exit fees: Leaving a lease early means you have to pay out the remaining lease payments and the residual value of the car.
  • More expensive: Multiple car leases for the one car are often more expensive than getting a car loan to buy that car outright.
  • No alterations: With car leases, you cannot improve or alter the car as you do not own it.
  • Driving restrictions: Many leases have restrictions on how many kilometres you can drive and how much wear and tear the car endures.
  • Additional costs: Add-ons like insurance are chosen by the dealer and can be very expensive and not be the best option for your situation. Breaching restrictions on driving or alterations or wear and tear will attract extra costs.

Find and compare popular car loans

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15.99%

Variable

16.84%

ANZ

$729

$5k to $50k

1.40

/ 5
Go to site
More details

2.99%

Variable

3.60%

Queensland Country Bank

$539

$1k to $75k

4.77

/ 5
More details

From

3.60%

Variable

4.51%

Australian Military Bank

$547

$4k to $80k

4.24

/ 5
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3.97%

Fixed

4.51%

loans.com.au

$552

$5k to $100k

4.11

/ 5
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3.99%

Fixed

4.60%

Queensland Country Bank

$552

$1k to $75k

4.01

/ 5
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From

4.40%

Variable

4.88%

ebroker.com.au

$558

$5k to $150k

3.87

/ 5
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From

4.45%

Fixed

4.93%

Credit Concierge

$559

$10k to $150k

3.70

/ 5
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From

3.85%

Variable

4.94%

Finance Ezi

$550

$10k to $250k

3.73

/ 5
More details

4.80%

Variable

4.94%

First Choice Credit Union

$563

From $30k

3.79

/ 5
More details

4.69%

Variable

4.96%

Police Credit Union

$562

From $20k

3.83

/ 5
More details

4.69%

Fixed

4.96%

Police Credit Union

$562

From $20k

3.93

/ 5
More details

4.65%

Fixed

4.99%

People's Choice Credit Union

$561

$20k to $100k

3.82

/ 5
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From

4.99%

Variable

4.99%

Orange Credit Union

$566

From $15k

3.82

/ 5
More details

4.74%

Variable

5.01%

Transport Mutual Credit Union

$563

From $5k

3.74

/ 5
More details

4.49%

Fixed

5.10%

Auswide Bank

$559

$5k to $75k

3.50

/ 5
More details

4.89%

Fixed

5.16%

MOVE Bank

$565

$10k to $150k

3.85

/ 5
More details

4.89%

Fixed

5.16%

Beyond Bank Australia

$565

$25k to $125k

3.73

/ 5
More details

4.99%

Variable

5.20%

Central West Credit Union

$566

From $30k

3.60

/ 5
More details

4.99%

Fixed

5.20%

Horizon Bank

$566

From $5k

3.72

/ 5
More details

4.67%

Fixed

5.22%

loans.com.au

$562

$5k to $100k

3.71

/ 5
More details

4.67%

Fixed

5.22%

loans.com.au

$562

$5k to $100k

3.71

/ 5
More details

4.99%

Variable

5.29%

Transport Mutual Credit Union

$566

From $5k

3.80

/ 5
More details

4.99%

Variable

5.35%

The Mac

$566

From $1k

3.77

/ 5
More details

3.85%

Variable

5.43%

Credit One

$550

$10k to $250k

3.45

/ 5
More details

From

4.89%

Fixed

5.44%

Plenti

$565

$10k to $100k

3.71

/ 5
More details

5.45%

Fixed

5.45%

Bank Australia

$572

From $1k

3.40

/ 5
More details

5.29%

Variable

5.56%

Bank First

$570

From $10k

3.52

/ 5
More details

5.29%

Fixed

5.56%

Bank First

$570

From $10k

3.52

/ 5
More details

4.05%

Fixed

5.63%

Stratton

$553

$10k to $250k

3.30

/ 5
More details

From

4.99%

Fixed

5.69%

RACV

$566

From $5k

3.38

/ 5
More details

5.45%

Variable

5.80%

Hunter United

$572

$10k to $100k

3.08

/ 5
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5.45%

Fixed

5.80%

IMB Bank

$572

$2k to $75k

3.29

/ 5
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From

5.29%

Fixed

5.84%

Plenti

$570

$10k to $100k

3.35

/ 5
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From

5.29%

Fixed

5.84%

Plenti

$570

$10k to $100k

3.50

/ 5
More details

5.80%

Variable

5.84%

Laboratories Credit Union

$577

$1k to $50k

3.41

/ 5
More details

5.84%

Variable

5.84%

Lysaght Credit Union

$578

From $5k

3.24

/ 5
More details

5.49%

Fixed

5.87%

Greater Bank

$573

$5k to $100k

3.40

/ 5
More details

5.60%

Fixed

5.88%

Illawarra Credit Union

$574

$10k to $50k

3.39

/ 5
More details

5.64%

Fixed

5.92%

Illawarra Credit Union

$575

$10k to $50k

3.37

/ 5
More details

5.59%

Variable

5.94%

Goldfields Money

$574

From $5k

3.16

/ 5
More details

5.65%

Variable

6.00%

BCU

$575

$5k to $65k

3.25

/ 5
More details

From

4.99%

Fixed

6.04%

CarLoans.com.au

$566

$7.5k to $100k

3.13

/ 5
More details

5.79%

Fixed

6.06%

Bank First

$577

From $10k

3.30

/ 5
More details

5.79%

Variable

6.06%

Bank First

$577

From $10k

3.30

/ 5
More details

5.79%

Variable

6.09%

Woolworths Team Bank

$577

$1k to $50k

3.25

/ 5
More details

Learn more about car loans

If you do not want to own the car outright, and have decided that a car lease is the best option for you, the next step is to apply for the car lease of your choosing.   

Ahead of submitting your application, it’s important to gather the necessary documentation, to reduce your chance of rejection. Being rejected from a credit application can have a negative impact on your credit rating, so for your benefit, it’s best to be prepared. 

Proof of Identity 

If you’re getting a car lease, you will need to prove that you are who you say you are. The following identity documents can help you with this: 

  • Driver's license, passport or proof of age card
  • Birth certificate or citizenship certificate
  • Proof of Australian residency
  • Medicare or credit card 
  • Concession or pension card
  • Utility bills or bank statements 

Proof of Income 

To prove to the lender that you can meet your car lease repayments, you can provide income documents including: 

  • Pay slips if you are a full time, part time or casual employee 
  • Previous years’ tax returns / notice of assessment if you are self-employed 
  • Rental income receipts (if you currently own a rental property)
  • A letter from your employer can help your application
  • Bank statements, usually at least three months
  • Superannuation statements, especially if you receive income from your super fund 
  • Any other document that shows you receive regular income 

What is a novated car lease? 

A novated car lease can help you to effectively reduce your taxable income. 

How does a novated car lease work? 

  1. You choose your car with your employer and supplier, and organise a car lease.
  2. Your employer makes lease payments on your behalf, deducting them from your salary prior to you being paid, and prior to being taxed.
  3. Your taxable income is reduced, so you pay less tax at or get a bigger refund at tax time. 

Before you apply, make sure you look at all the factors so you can make the best financial decision for you. 

Disadvantages of a novated car lease 

If you were to lose your job while you had a novated car lease, the lease would become a consumer lease, meaning you will lose the benefits of tax deductions. 

Many car leases do not allow you to choose your own insurance, so you may be stuck paying for an expensive car insurance policy, and this will carry on regardless of whether you lose your job and the lease changes to a consumer lease.   

If you damage the vehicle or drive more than the stipulated kilometres during your lease, you'll have to pay excess charges when the lease term ends. 

What documentation do you need to supply for a novated lease? 

The documentation needed to secure a novated car lease differs slightly from the documentation required for a standard lease. This is mainly because this is not a consumer lease, but a lease that involves an employee, employer and supplier agreement. As there are tax deductions that benefit the lease, you’ll need: 

  • Signed copy of your lease quote (signed by both you and your employer)  
  • Completed novated lease application  
  • Your insurance declaration form 
  • Privacy and consent declaration 
  • A copy of your driver’s license 
  • A copy of your most recent pay slip 
  • A copy of your rates notice or rental agreement which indicates where you live