Lease vs. Buy A Car

Lease versus buy a car: Get all the facts and options, plus learn how easy it is to compare products via Savvy

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, updated on July 4th, 2023       

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Leasing vs buying a car - which is best option for you?

What is a car lease?

A car lease can work a bit like vehicle hire. A lender buys the car, and you pay a fixed monthly fee to use it. Finance leases carry an obligation to purchase the vehicle at the end of the term, so there’s a residual amount due when the lease ends. Other options, called operating leases, give you a bit more freedom, so you can either make an offer for the vehicle or walk away.  In order to use a finance or operating car lease, you need to use the car for business purposes at least half the time, but you’re free to buy a ute, car, or a van with a lease, as well as heavier commercial vehicles. With leases, you never own a vehicle until the finance term ends.

How does a car loan work?

You can use the equivalent of a car loan whether you’re a commercial or private buyer. If you’re the latter, secured car loans are a simple and convenient way to borrow. Because your car acts as collateral, your fixed monthly repayments have a low interest rate attached. If you’re in business, chattel mortgages work much the same way as a secured car loan. You make a fixed monthly payment with a competitive interest rate, and chattel mortgages have tax benefits designed for business. Both options let you use a deposit, trade-in, or borrow 100% of what your vehicle costs – and you own the car from the start of the term.

Pros and cons of lease vs car loan

Leases Loans
Ownership and Equity
You never own the car with a vehicle lease until the finance term ends, and your payments don’t build equity in the car or commercial vehicle with an operating lease. With a finance lease, they do
With a chattel mortgage or secured car loan, you build equity in the vehicle every time you make a repayment, and you own the car from the start – albeit with the lender holding a mortgage or claim
With an operating lease, you have no resale value risk, but with a finance lease, you do – although the residual is calculated from the depreciation rate, so the resale value shouldn’t be too far off your equity level
You own the vehicle from the start of the term and continue to own it when the agreement ends, so you carry the resale value risk – but you do get to claim depreciation on your tax returns throughout the term
Monthly Payments
Operating lease payments are usually lower during the term because you’re mainly just paying for the vehicle’s depreciation. Finance leases work more like a chattel mortgage because a residual is due when the term ends
Loan payments during the term cover the entire cost of the car, although you can use a residual to make them lower – but remember, you’ll either need to pay that or refinance when the term ends
Damage and Wear
You’ll be financially liable for damage that occurs during the car lease
You won’t get penalised by the lender if the car gets scratched or damaged
You won’t be able to modify the vehicle during the term
You’ll own the vehicle, so you can customise or modify it during the loan
Loan Terms
Lease terms usually run between two and five years
Secured loans and chattel mortgages run between one and five years, and you can refinance residuals to extend that period
Tax Implications
With finance and operating leases, the entire repayment – principal plus interest – is tax-deductible. The total cost of the lease is based on the ex-GST value of the car, because the lender claims the GST back
With a secured car loan, repayments for any portion of business use are tax-deductible. With a chattel mortgage, you claim depreciation and interest on repayments as you go, and all the purchase price GST back as soon as you next file a BAS

Why choose Savvy for your car lease

Primary benefits of each car finance option

Find answers to common lease vs buy a car questions

Can I lease a car as a private customer?

Only if your job package supports a salary sacrificing scheme. Novated leases are a three-way agreement between you, a specialist lender, and your employer. Repayments get deducted from your salary before tax, so that also has to be before you get paid, and your HR department at work does that. Not all employers offer the option to use a novated lease, but if you work in the education, health, or emergency services sectors, there’s a reasonable chance they might.

Can I get access to new and used vehicles using finance?

Most leases are for new vehicles, but chattel mortgages and secured car loans can be used to buy both new and second-hand cars, utes, and trucks, from dealerships, private sellers, and even auction sites. If you’re buying a used vehicle, the lender will want some information for valuation purposes. Each loan provider specifies different age limits, which apply at the end of the finance term.

How does the lease process work?

Leasing a vehicle is fast and straightforward. Once you decide which one you want and specify optional extras and modifications if they’re required, we’ll advise as to a delivery date. When your application has been approved, and you’ve signed an agreement, the lender will purchase the vehicle, and delivery is made as soon as possible. Most cars have a quick turnaround time, although special orders and unusual extras or upgrades might take slightly longer.

What happens once I apply for a car loan or chattel mortgage?

You’ll need to supply ID and fill out a quick application form. Business users need to have a valid ABN, and the lender might ask for profit and loss accounts or tax returns. If you’re a private buyer, you’ll need to provide paylips so the lender can work out your income. When your loan gets approved, the lender pays the car vendor directly, and then you can take delivery. Forms and agreements all get filled out, signed, and returned online, so the process is speedy.

How can a broker like Savvy help me?

At Savvy, we leverage established relationships with dozens of lenders to bring you more options and better rates. We know the products and the process, so we’re always here to support a quick and convenient application. If you’re a commercial customer, we can also help source low doc vehicle finance from specialist providers. Private buyers who’ve had borrowing difficulties in the past can usually still get bad credit car finance, so make sure to speak with a Savvy consultant if that applies to you.

Should I lease or buy a car?

The question of lease versus buy a car is different for every individual or organisation. It really does depend on your situation and aims. If you’re a business customer, it’s a great idea to talk with both your accountant and a savvy car finance consultant before you make a decision because the tax implications often define the best solution. When you’re a private buyer, unless you have access to a salary sacrificing scheme, it’s likely a secured car loan will be your best option – and Savvy can help you find the best rate too.

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