Vehicle lease versus loan: what’s right for you?

Lease or loan? Leasing or buying a car with a loan are two of the most popular ways to get a new vehicle in New Zealand. Which is best for you? Here’s what you need to know.

Read more: What are your options for financing a car in New Zealand?

WHAT’S VEHICLE LEASING?

When you lease a vehicle, you get to use it for a certain amount of time and for a certain number of kilometres. Usually, this is between 12 and 45 months and up to 150,000km per year. Over that time, you pay a fee every month. Once the time is up, you return the car to the company you leased it from. At no point do you own the car: you’re essentially just renting it for a long time.

Before you lease, you’ll need to know:

• What kind of car you want
• How far you plan to drive it
• How long you plan to use it
• How you’ll fit the monthly lease costs into your budget

WHAT’S A VEHICLE LOAN?

When you get a loan for a vehicle, you are buying it. You become the new owner and there are no restrictions on how much you drive it. You have to get approval on the vehicle loan, which requires good credit history, evidence you can afford the loan and an acceptable vehicle being purchased. You make regular repayments on the loan to your lender.

You can also add the cost of the vehicle to an existing loan, such as through a top-up or refinance.

Before you borrow, you’ll need to know:

• What car you want to buy
• What lender you want to borrow from
• How you’ll fit the monthly loan costs into your budget

IS IT BETTER TO BUY OR LEASE A VEHICLE?

Advantages of leasing a vehicle:

• Depreciation. A car starts losing value as soon as it puts wheels on the road. Leasing a vehicle means you never take ownership of a thing that’s losing value.
• Leasing a new car is usually cheaper compared to buying the same model – and if you decide you need a different vehicle at the end of the agreement? You can switch to a new car with a new lease.
• Selling the car. What you do with your old car once you have a new one is a headache. When you lease a car, you don’t have to deal with that. Once the contract is up, you just give it back to the leasing company.

Advantages of buying a vehicle:

• No restrictions. You can drive it where you like, as much as you like.
• Ownership. Once you’ve paid off the loan, you can keep the car, sell it, trade it, modify it, give it to a family member – whatever you want.
• Wear and tear. If your car gets damaged but it’s still roadworthy (such as getting scratched), it’s your choice whether it gets repaired or not.

A word on costs: As a general rule of thumb (very general!), a car’s monthly leasing costs are usually lower than a car’s monthly loan costs. This is because you’re only paying to use it, not to own it. It depends on your needs and wants whether the difference is worthwhile.

Remember that if you drive a leased car more than you agreed to, there can be big costs added on once you return it. You’ll also need to pay for insurance, roadside assistance and any wear and tear on the vehicle. Read the contract carefully to ensure you know about any less obvious extra fees, particularly any break fees as these can be especially expensive.

For a car loan, if you miss a repayment, you’ll also likely have extra interest and fees charged on the loan. Again, make sure you read your contract carefully to know exactly what you’re agreeing to. If you are concerned you won’t be able to make a repayment, get in touch with your lender. They may be able to help you with an adjusted repayment schedule or similar.

If you want a car without restrictions on what you do with it, it may be better to get a vehicle loan. If you want a car for a fixed period of time and fewer responsibilities (but more restrictions), it may be better to lease it.

Rather own than lease and need vehicle finance? Begin your car loan application with Avanti Finance.