A brand new car marks a major milestone for many drivers, but arguably the even bigger decision is whether you’re going to lease or buy the car. While both options have pros and cons, it’s important that you also factor in your personal finances and driving habits before you make a decision.
Leasing a Car
Instead of borrowing money to buy a car, leasing a car requires you to pay for the right to drive the vehicle for a specific period of time. Similar to when you sign the lease on a rental property and stay there for 12 months or another set amount of time. The length of a lease will normally range from three to four years and monthly repayments pay for the vehicle’s depreciation throughout the lease term.
When you choose to lease you won’t have to pay a substantial upfront investment and this may be a better option for drivers who aren’t looking for a long-term financial commitment. Not only are the monthly costs more manageable but you’ll have the opportunity to drive your “dream car” which you may not have been able to afford otherwise.
Benefits of Leasing a Car
Lower monthly payments - Lease repayments are usually lower than loan payments
Future value - Its future value doesn’t affect you financially
Return the vehicle - You return the vehicle at lease end
Access to vehicle - Access to a vehicle that may be more expensive to buy
- End of term purchase - At the end of the lease you can finance the purchase for a pre-arranged price, lease, or buy another car
Downsides of Leasing a Car
Lack of ownership - You don’t own the vehicle unless you decide to purchase it once the lease period ends
Early termination fees - If the lease is terminated early then substantial charges can apply
Limited mileage - Your lease may have a limit on the number of kilometres you can drive in a year
Excessive wear and tear - You could end up paying an additional fee if damage goes beyond normal wear and tear
- Removing customisations - Any modifications or custom parts may have to be removed
Buying a Car
Buying a car means that you can purchase the vehicle upfront or through a loan. The upfront costs when you buy a car will include the cash price and deposit, taxes, registration, and any other applicable fees.
Buying a car is the better option for drivers who want to maintain full control of both their vehicle and their finances. One of the best parts of buying a car is that you can sell or trade-in a vehicle at any time. This is something that you can’t do if you choose to lease your car instead.
Benefits of Buying a Car
Full ownership - You own the vehicle
Terminate ownership at any time - You can sell or trade-in your vehicle at any time
Cash value is yours - The amount your car is worth in its current condition is yours to keep and you can use it as you like.
Unlimited mileage - Unlimited kilometers
No further payments - If you took out a loan to buy the car, at the end of the loan term you have no further payments
- Customise your car - The car is yours to modify and customise
Downsides of Buying a Car
Sell or trade in your vehicle - You’ll have to sell or trade-in your car yourself
Future value decreases - The vehicle will depreciate over time.
Excessive wear and tear - Wear and tear could lower the vehicle’s trade-in or resale value
If you’re looking to save on your purchase you may want to consider buying a second-hand car instead.
How does this affect the cost of your car insurance?
Using historical data we can also determine that vehicles with any type of finance will attract a higher premium. Here at Budget Direct, our data shows that financed vehicles have a higher chance of being more likely to be involved in a claim.
Should I lease or buy my car?
Deciding whether to lease or buy your car can be difficult but should all come down to what's best for you and your financial position.
If costs are key when deciding what to drive, one important factor to consider would be your car insurance. With Budget Direct, you can receive 15%^ off on your first year’s premium for a new Car Insurance policy when purchased online - regardless of whether you lease or buy.