Leasing vs financing - what's best for you? 

If you want to drive around in a new vehicle, you have one important decision to make - will you lease the car or buy it on finance? Before you can make your choice, you will need to know the difference between leasing vs financing a vehicle, as well as the pros and cons of each. 

Leasing a vehicle affords you the ability to have a brand new car to drive around in for a set length of time. However, the car is not yours - you just get to use it while paying for the lease. 

On the other hand, financing a car means that it fully belongs to you once you've finished paying off the loan. The below article delves deeper into these two options.

What does leasing a vehicle involve? 

Vehicle leases are quite common for newer cars. They often last from 36 - 48 months, and after this period, you can either return the vehicle or purchase it at a pre-set amount according to your lease contract.

Lease payments

Here are some of the factors that contribute towards the price you pay for the car lease:

• Sale price - how much the vehicle is worth.
• How long the lease is - longer leases may be cheaper per month.
• Estimated mileage - lease contracts often dictate the maximum number of kilometres you can drive in the car each year. The more mileage you want, the more you'll pay. If you go over the number of kilometres, you'll have to pay an additional fee.
• Taxes and fees - when leasing a car, you still end up paying the equivalent of interest in rental charges and other fees charged by the dealership.

Pros of leasing a car 

• Lower payments - the amount you'll pay each month to lease a car is often less than you will pay if you buy the vehicle on finance.
• Drive a new car - the main reason people choose to lease a car is that they want to be able to drive the latest model around town. However, remember that by the end of your lease, that car won't be so new anymore.
• Business Owner Benefits - If you are a business owner and choose to lease a car, you may be eligible for fringe benefit tax (FBT) benefits. 

Considerations for leasing a car

• You don't get to keep it - unless you pay extra at the end of the lease agreement, you don't get to keep the car. So you will have made payments for months with nothing to show at the end of it. 
• Down payment - many car dealers require you to make a down payment on the car you're leasing. However, you don't get this money back at the end of your lease, so you can goodbye to this cash.

What does financing a car involve?

When you don't have enough money to buy a car outright, financing can be a great option to get you on the road faster.

Finance payments

There are a few things you'll need to pay for when purchasing a car on finance, including:

• The cost of the vehicle you choose - this will have the most significant effort on the price you end up paying overall.
• Interest on your loan - the amount will vary depending on which lender you choose. 
• Fees and charges - issued by the finance company. 

And that's it! Working out the cost of buying a car on finance is much more straightforward than trying to find out how much you'll pay overall if you lease one.

Pros of financing a car

• Keep the car - the best part about buying a car on finance is that once you've paid off the loan, the car is all yours. 
• Variety of options - when you finance a car, you'll get to choose whichever car you like. You can buy a brand new vehicle or an older model.
• No mileage limit - when you finance a car, it's all yours. That means there's no limit on mileage, so you can drive as far as you want, as often as you wish. Plus, if your car gets dinged, there's no one to answer to - it's up to you whether you get it repaired or not. Being able to make these decisions about your own car is priceless. 

Considerations for financing a car

• Choosing a Finance company - choose your finance company wisely, as interest rates, fees, and charges can vary significantly between the various lenders. Read the fine print before you sign up and find a company that will offer you a fair interest rate based on your credit history.

What's better - leasing or financing a car? 

Overall, what's the best option - leasing or financing a car? Most kiwis don't feel the need to drive around in a brand new vehicle only to lease another after a couple of years. For most New Zealanders, the best option is to buy a car on finance.

This way, you will eventually pay off your loan and get a car that will last you for years to come. When compared with leasing a car, which requires you to make years of payments only to give the car back at the end, financing is a much better deal for most people. 

Finally, while you may pay slightly less overall when you lease your car, it ends up being more expensive at the end of the lease, as you'll have nothing to show for it. Alternatively, by paying off a loan for a car, you're working towards owning your car outright, so you'll have the car as an asset once you've paid it off.