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Buying or Leasing a Car: Pros and Cons

By Edited Nov 13, 2013 0 0

As much as we all try and cut back on our carbon footprint, there is no escaping the need for a vehicle, and whether you buy or rent a car, finding the option which is right for you will make for a positive impact on your environment and on your budget.

Before you automatically take out a car loan or empty your savings to buy a car, consider the option of renting a car through a vehicle lease. Renting a car offers some unique benefits such as the ability to put down a smaller deposit on your financing, not to mention upgrade to a new car every three years while your friends and neighbours all drive the same old cars year in and year out.

However, if the security of purchasing a vehicle and knowing you will eventually own it is an important part of car ownership then you may be better off buying, especially if you enjoy the freedom to not count the miles you drive and pay off your vehicle debts in just a few years. To open your eyes to purchasing possibilities you may not be familiar with, and haven't considered before learn more about the pros and cons of renting or buying a car.

What is involved in buying a car?

Buying a car is not something you do every day, and often signifies an important milestone in your life. Often you buy a car when you get your license, you move out of home, you get a job and you start a family because each of these life changing moments heralds an upgrade to your vehicle.

The financing process to buying a car is much like any other personal loan where you are assessed on your ability to repay the loan, your credit history is checked and a three year payment plan is put in place. When buying a car using a traditional car loan you may choose to provide a larger deposit to reduce your repayments, and this allows you to borrow and pay interest on a lower amount, while keeping some of your savings intact.

Buying a car using a car loan could be the best option for you if you:

  • Rarely buy a new car.

  • Usually keep your cars for more than five years.

  • Are conscious of getting the most value from your money.

  • Drive a lot more than 15,000 miles per year.

  • Have the cash flow to repay a car loan in full in the next five years.

Features of a vehicle lease to rent a car

When you rent a car it is much like renting a house, you pay the owner a certain amount each week or month for the use of their home, but at the end of the lease agreement you don't own the house. Renting a car has an important difference because you are getting the use of a brand new car – unlike a rental home where hundreds of other people have passed through. The repayments on a car lease are also much lower than a car loan which means you can be driving a new $20,000 car for the same monthly repayments had you bought a used $10,000 for example.

Renting a car also makes sense if you are in business because most of the costs of the car are tax deductible, including maintenance, servicing, repairs, repayments and fuel. Therefore, even though you are paying more in the long run to turn over your car every three years, you are able to increase your monthly cash flow with smaller repayments, and regularly upgrade to a reliable new vehicle before the new car smell has dissipated.

To make sure you will be getting the most out of renting rather than buying a car, consider whether you:

  • Buy a new car every three to four years.

  • Don't mind making lease repayments indefinitely.

  • Are self employed or work in a business which can make the repayments and benefit from the tax deductions.

  • Drive less than 15,000 miles a year.

  • Like the security and reliability of having your car covered by the manufacturer's warranty.

  • Don't have the cash flow to make full car loan repayments.

  • Want the opportunity for an extended test drive before being given the option to buy the car at the end of the lease.

Should you rent a car?

Renting a car is just a different way for you to get the most value from your car buying budget because you are paying less for a vehicle than you would be if you'd bought it using a car loan, and you are only paying for the portion of the car you are using, rather than being burdened with the cost of the car for years to come. Regularly updating your car lease with a new model will mean another down payment and more establishment fees for your finance, but consider the pros of renting a car such as:

  • Lower monthly repayments.

  • A smaller down payment on your finance.

  • The fact that you are driving a new car every three years and enjoying the latest styling and technology.

  • You pay less in maintenance and repairs because the car is covered by the manufacturer' warranty during the time you are driving it.

  • You don't have to try and sell your car when you're finished with it, but can automatically upgrade through the dealer.

  • You pay less sales tax as the tax is calculated on the portion of the car's value you will use, which over a three year lease for a $20,000 car is less than half the vehicle's value.

  • Benefits to your business such as a professional image, tax deductions and building a strong credit rating.

At the same time, consider some other downsides to renting a car as compared to buying one, including:

  • You won't own the car at the end of the lease, although you will have the option to buy it back.

  • If you drive more than the number of miles specified in the lease agreement you will have to pay for these extra miles at the end of the term. You are usually allocated between 12,000 and 15,000 miles per year.

  • You may be liable for additional wear and tear charges at the end of the lease depending on how you treat the vehicle.

  • Terminating a lease before the three year term can be costly so if your circumstances change and you can no longer afford the car you can find yourself with a new financial burden.

  • If you keep the same car you will be paying more for it in the long run than if you had bought it using a car loan.

Should you buy a car?

Buying a car using a traditional car loan and renting a car through a car lease appear to be very similar financing solutions. However, it is a specific type of person who will see benefit in the pros of buying a car, which include:

  • Pride in saving, working hard and budgeting well to afford a vehicle which is your own.

  • The freedom to adjust and modify your vehicle if you choose.

  • An affordable way to purchase a vehicle because you own it outright after just three years and you are not paying any more interest or finance fees.

  • After three years your only expenses are fuel, registration and servicing.

  • You are not limited to drive a set number of miles each year.

  • You can sell your car at any time, and if you have paid off your car loan, the profits from the sale are profits for your pocket.

When considering whether you should buy a car, don't forget to consider the cons, including:

  • Higher monthly repayments, which can mean a higher down payment to finance a more affordable amount.

  • The costs for maintenance and repairs to your car after the new car warranty expires.

  • You could be stuck with your used car when you are ready to sell.

  • Your cash is tied up in a depreciating asset which doesn't offer tax benefits, capital growth or dividends.



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