Leasing vs Buying a Car: How to Get the Best Deal

Buying a new car is always exciting but it’s a big decision. It’s vital to get it right if you want to keep your finances healthy. Whether you choose to lease or buy, it’s important to know you’re getting the best value for money. Here we take a look at how to get an excellent deal whichever option you choose.

How to get the best lease deal

There are a number of leasing options available on the market. The one you choose will depend on what outcome you want at the end of the lease and what you can afford to pay each month. Whichever option you’re looking at, it’s important not to take the first deal you’re offered – shopping around can often secure you a much better deal.

Keep your options open

Always get at least two quotes when you’re looking to lease a car. Don’t limit your options when it comes to the car you choose. We all have an idea of the car we can see ourselves driving but often test driving other models as well can reveal some pleasant surprises!

If you want accessories for the car, it’s worth including them in the cost and getting them fitted at the dealership. This will be cheaper than getting them from somewhere else at a later date.

It’s also important not to sign anything there and then at the dealership – you’ll often save yourself money by exploring other options.

Consider a leasing company

Using a reputable leasing company will often result in savings. A leasing company can put you in touch with the fleet representative at a dealership. Often the good relationships they share will secure you a more advantageous deal.

Look at novated leases

If you are entitled to a company car at work, it’s worth finding out what it would cost you to purchase a car through a novated lease. This is a lease which is taken out by your employer so you can purchase a car with significant tax savings. As a result, there are three people involved in the contract – the lender, your employer, and you.

You can potentially make large savings with a novated lease, as your employer will pay your monthly car costs and take them out of your pre-tax salary. You’ll save on the amount of tax you have to pay each month, while still enjoying all the benefits of a new car. You can use the car for all your own personal journeys, not just those required for work.

This will incur Fringe Benefits Tax (FBT), which is paid by your employer and charged back to you, but it usually works out to be less than the amount of income tax you’d have to pay if you took your full salary instead of taking the car payments out of it. You can also potentially reduce the amount of FBT you’ll have to pay by considering a trade-in deposit.

At the end of your novated lease contract, you’ll have to pay a lump sum known as the residual value. When you’ve paid this, you’ll own the car! This gives you the option to upgrade to a newer vehicle as soon as your contract ends – you could have a brand new car every year or two!

How to get the best deal when buying a car

Most of us can’t afford to buy a brand new car outright. If you’re using a loan, here are some tips for getting the most out of your money.

Compare the costs

If you’re taking out a personal loan to purchase a car, it’s important to shop around to make sure you’re getting the best rate. It’s also worth comparing this cost against the cost of a novated lease, where you’re still end up owning the car at the end of the lease term. If you’re unsure, you can always seek advice from a professional leasing company, who can assist you in a comparison.

Try not to use your home loan

While using your home loan to buy a car can seem attractive due to the lower interest rates, there are a number of pitfalls you’ll have to avoid. For a start, your mortgage lender may charge you a redraw fee in order to use your mortgage to pay for your car. In addition, you will have to increase your monthly mortgage payments each month for the next three to five years until you have paid off the car.

If you do decide to use your home loan, don’t make the mistake of spreading the cost of your car over the full term of your mortgage – you could end up having to pay two or three times the amount you’ve borrowed.

Get the best insurance deal

You’ll also have to compare insurance prices if you want to make savings. Don’t forget, it’s essential to have Guaranteed Asset Protection (GAP) if you’re buying your car with a loan. If your car is written off due to accidental damage or theft, you will have to pay the outstanding balance on your car, in full, to your finance company, even though you no longer have use of the car.

GAP covers the shortfall between the amount of compensation you receive if your car is written off – the current market value of the vehicle – and the market value of the same vehicle when you purchased it, which you still owe your lender. This could be thousands of dollars more than the compensation you receive, so GAP cover is essential if you want to protect your finances.

Consider a demo model

A demo model may not spring to mind straight away but it can often save you money. It will have done more miles than most new cars but it will still be the very latest model, and will often come with a variety of extras, too!

Whether you lease or buy a new car, there are obviously a number of perks and caveats to take into consideration. Make sure you deal with reputable companies who will help you work out the best option for you.

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