After a home, buying a car is likely to be the next biggest purchase you’ll make in life.
Considering a personal loan or leasing a car to finance this purchase?
Both options are great ways to reduce the large upfront cost of buying a car; but what’s best for you? We’ve put together a summary of some of the key differences between the two to help you make an informed decision when the time is right!
When thinking about leasing a car or taking out a car loan, the first thing that comes to mind is: “How much will I have to fork out each month?” Leasing a car often has lower monthly repayments as some of the payment might come from your pre-tax wage and you are only paying for its use, rather than paying off the car itself. However, they typically come with higher finance rates so make sure you do your homework! In the long run, if you shop around for the right car loan rate, your repayments could be comparable. And since a car loan enables you to ‘own’ the car, this helps you build equity. Plus you can sell it down the track to recover some costs!
Leasing a car can also come with additional fees and charges, particularly from wear and tear costs and exceeding the amount of kilometres you’re allowed to drive. If you’d like to use your car for weekend road trips and family holidays or, you’re prone to a ding or two – leasing is probably not the best option for you.
Ownership vs upgrades
As we already mentioned, taking out a car loan means you own the car. So whether it’s adding tinted windows or a new set of wheels, you can modify the car to suit your needs. In contrast, when it comes to leasing you’re stuck with what you have and can’t make any modifications to your car.
Just like renting a house, when a lease agreement ends, you either have to hand over the keys and return the car (so it’s best not to get too attached to it) or make the decision to purchase it outright. However, if you’re someone who loves having the latest models and features, leasing a car allows you to upgrade every few years without the hassle of selling.
There can be added cost savings when it comes to taking out a novated lease, for example the GST saving when leasing a new car. Additionally, monthly repayments come out of your pre-tax salary which reduces your taxable income, meaning more money in your pocket each pay day. Depending on your employer’s Salary Packaging, you may also save on the running costs of your car like petrol and maintenance.
Freedom of choice
Buying a car allows you to shop around and compare car loans that suit your financial and personal needs including a choice between unsecured and secured loans. Plus you can purchase your car from wherever you like, so you have to power to drive a hard bargain!
In addition to choosing a car loan of your choice, you also have the freedom to choose your own car insurance policy. Many car leases have a set insurance policy meaning you could be locked into a policy that’s not exactly right for you!
Whether it’s taking out a car loan or leasing a car, make sure you review your options carefully and choose the option that’s right for you.
Subject to the product issuer’s underwriting rules and acceptance guidelines.
Terms, conditions and exclusions apply and are available upon application.
The information above is general advice only and does not take into consideration your personal objectives, financial situation or needs (“your personal circumstances”). Please consider the relevant Product Disclosure Statement (PDS), other Disclosure Documents and your personal circumstances before making any decision to purchase the products. Contact us on 13 11 82 with any questions, or visit your nearest branch to talk to a consultant. This information is not intended to provide, and should not be relied upon for tax or accounting advice. You should consult your own tax and accounting advisors for specific advice.
General insurance is issued by Insurance Australia Limited ABN 11 000 016 722 AFSL 227681 trading as CGU Insurance. All our insurance issuers pay commission at rates which range from 0% - 40% of the base premium. The commission rate varies depending on the type of insurance.
People’s Choice Credit Union, a trading name of Australian Central Credit Union Ltd. ABN 11 087 651 125 Australian Financial Services Licence 244310, acts under its own Australian Financial Service Licence and under an agreement with the insurer Insurance Australia Limited ABN 11 000 016 722 AFSL 227681 trading as CGU Insurance.