Car lease or car loan — Which gives you better value?

Buying a new car isn’t as simple as walking into then driving out of a dealership. Working out how it’s going to be purchased for is vital, and there are different ways to pay.

One of the biggest decisions for car buyers today is deciding how to pay for it.

Do you apply for a car loan, or secure a car lease through an employer? It’s worth understanding how the finances work before choosing a make, model and colour.

Sgfleet managing director Australia Andy Mulcaster said the option of a novated lease allowed people to forgo a portion of their salary in return for a fully maintained car.

There are different ways to finance your next set of wheels.

If you’re considering leasing a car, the Compare Money car leasing guide could help >

“The three party agreement provides significant tax savings, we help you set a budget to cover your car’s expenses over the life of your lease, we use regular deductions from your salary to pay for all of your car’s running costs including fuel, servicing, registration and insurance,” he said.

Mr Mulcaster said people did not have to earn a huge salary or use the car for business purposes for it to be worthwhile.

Easifleet sales director Zac Brennan said the main difference was that employees did not get any tax savings under a loan. “On average you could expect to save over $3000 per year on tax doing a novated lease compared to a car loan,” he said.

However, self-employed people and business owners can access several tax breaks such as instant asset-write offs, depreciation and deductions for interest payments on their car loans.

Bank Australia car loan specialist Travis Morgan said everyone’s situation was different so car buyers should weigh up both options.

“Car loans allow you to make extra repayments, leaving you debt-free sooner,” he said.

“You can also sell the car or pay off the loan in full. Car leases help you manage the costs of your car each month.”

People’s Choice Credit Union spokesman Stuart Symons said financing a car through a loan allowed you more flexibility.

People's Choice Credit Union spokesman Stuart Symons says you own an asset after a loan.

“The great thing about a loan is that you own an asset, can redraw on advances if needed and it’s unlikely to have a balloon payment at the end,” he said.

“It comes down to what your financial goals are over time. The cost of having a loan and owning your own vehicle over 10 years is less than having revolving car leases over the same time.

“According to the ABS, Australians had $1.2 billion in personal loan commitments for motor vehicles in November 2018, compared to only $375 million in lease commitments.”

Suncorp executive general manager of lending Glenn Haslam said lending specialists could guide you through finding the right loan.

“You need to consider how much you can afford to borrow, the right repayment structure and how long you want to have the loan for,” he said.

SECURE THE BEST CAR LOAN RATE

• Separate the processes of the loan and car, looking for competitive rates with the best features.

• Car dealers offer financing deals with zero per cent interest, but there are many cases where people have only become aware of fees when it’s too late.

• Look beyond the big four banks for competitive rates.

• Look for non-rate benefits and features such as early pay-off, redraw and protection products.

Source: People’s Choice Credit Union