Are you in the market for a new car but undecided between buying and leasing? Making the right decision requires careful consideration and understanding of the advantages and disadvantages of each option. So, join us on this journey to unravel the world of car ownership, and decide which is best for you!
Pros and Cons of Buying a Car
In New Zealand, buying a car is the traditional route that many people opt for. This involves either purchasing it outright with cash or financing it through a loan. Here are some of the advantages and disadvantages to this option.
Pros:
Long-term ownership — Buying a car means it's yours to keep for as long as you want. You have the freedom to drive it for years without any kilometre restrictions or worries about exceeding lease limits.
Customisation and modification — As the owner, you have the liberty to personalise your car to your heart's desire. From custom paint jobs to accessory upgrades, you have the flexibility to make the car truly your own.
Resale value — When you own your car, you have a valuable asset that can be sold or traded in for a future car purchase at a time that suits you.
Purchasing flexibility — There are a variety of ways to pay for your car, including cash or borrowing money from family or a lending institution (bank, finance company). When borrowing money you can tailor your finance agreement to suit your budget by adjusting the term and interest rate.
Cons:
Higher upfront costs — Buying a car typically requires a larger upfront payment compared to leasing. You'll need to consider the down payment, taxes, registration fees, ongoing servicing and other associated costs.
Monthly loan payments — If you choose to finance your car, you may have the ongoing financial commitment of loan payments including interest to factor into your budget.
Potential depreciation — Cars are assets that tend to depreciate over time. While some models retain their value better than others, it's important to understand that your car's value will decrease over time.
Pros and Cons of Car Leasing
Car leasing is where you rent or pay to use a vehicle for a specified period. Here are some of the pros and cons to consider when it comes to leasing:
Pros:
Lower monthly payments — One of the primary advantages of leasing is that it typically comes with lower monthly payments compared to buying. This is because you're only paying for the vehicle's depreciation during the lease term, rather than the entire purchase price.
Drive a new car every few years — Leasing allows you to enjoy the experience of driving a new car more frequently. Once your lease term ends, you can easily transition to a new leased vehicle, keeping up with the latest technology, safety features, and styling.
No resale worries — When the lease term is finished, you simply hand the vehicle back to the lease company without the stress of selling the vehicle to someone else.
Potential for tax deductions – If using for business purposes, you can claim up to 100% of the cost as a tax deductible operating expense without having to depreciate the asset or having to find the capital.
Cons:
Mileage restrictions — Leased vehicles typically come with kilometre limits, which may vary depending on the terms of the lease. Exceeding the agreed-upon mileage limit can result in additional charges, so it's important to consider your driving habits and estimate your requirements accurately.
Additional fees — Lease agreements often include guidelines on the acceptable wear and tear of the vehicle. Excessive damages beyond normal wear may result in additional fees when returning the leased car. Other fees can be incurred if you modify the car, terminate the contract early or to cover the leaseholder to clean and on-sell the car.
No ownership equity — Unlike buying a car, leasing does not provide you with ownership equity in the vehicle. At the end of the lease term, you return the car to the leasing company, without any ownership stake or the ability to build equity over time.
Best of Both Worlds
If you are looking for something that provides the best of both options, then Assured Future Value is worth considering. Also known as Guaranteed Future Value, you get to choose at the end of your agreed term, whether to:- pay the same regular payment and upgrade to a new car,
- use the money you have paid so far as a deposit towards the car you are driving, or
- return the car without any further finance payments
Making the Right Choice
Making the decision between buying and leasing a car requires careful consideration of your unique circumstances. To weigh the pros and cons effectively, start by assessing your financial situation. Consider your budget, including upfront costs, monthly payments, and potential long-term value. Think about your future goals—is long-term ownership a priority, or do you prefer the flexibility of driving a new car every few years?
Next, evaluate your driving preferences. Do you want the freedom to go where you want when you want or will leasing's mileage restrictions suit you. Also, think about your desired level of customisation. If personalising your vehicle is important, buying might be the better option.
It is helpful to seek independent financial advice or consult with a car buying specialist to get a better understanding. They can provide guidance tailored to your specific needs and help you navigate the decision-making process.
Ultimately, the choice between buying and leasing depends on your financial situation, future plans, and personal preferences. Take the time to evaluate these factors, weigh the pros and cons, and make a decision that aligns with your goals and circumstances.
If you need some help figuring out which vehicle is right for you, download our Guide to Buying a New Car to find your perfect match.
