Ultimate guide to car leasing

Deciding between a car lease and a car loan? Car leasing can offer a range of benefits and disadvantages when compared with buying a car via a car loan. Before you make a choice between the two, our guide below could help you to compare them and decide which option you’d prefer.

While a car loan could enable you to eventually own a car, car leasing is entirely different. When you lease a car, someone else buys the car, and you pay to use it. In some ways, this type of car finance is like renting a house. You get the benefits of using a car as if you own it, but you don’t have to deal with some of the disadvantages of actual car ownership.

However, unlike renting a home, when your car lease finishes, you can make a residual payment equal to the value of the vehicle and then become the official owner of the car, sign a new lease for the car, lease another car, or just give the car back.

There are several lease options you can use to finance a car, with terms ranging from a true rental arrangement to a lease-to-buy arrangement. Pretty much most vehicle leasing falls into one of the following categories.

A novated lease is a three-way lease between you, your employer and the lessor. You get to rent the car. Your employer pays the monthly payments, taking the money from your wages before they’re paid to you (this is called salary packaging). The payments are made to the finance company that offered the lease. This may be the owner of the car, but it doesn’t have to be.

Because the lease payments come out of your pre-tax salary, a novated lease can help to reduce your taxable income. However, your employer may then have to pay fringe benefits tax, which they may also pass on to you. If you’re considering this option, it’s important to speak to an accountant or tax professional to make sure the novated lease is structure is suitable for you.

One particularly popular aspect of a novated lease is that it doesn’t just cover the cost of the car. It can also cover petrol, maintenance costs, registration, insurance, and any other car-related running costs. If the company leasing the car buys it from a dealer, they may be able to claim back the GST, which if passed on may help add to your savings.

If you choose a finance lease, someone else will purchase the vehicle you want and then lease it directly to you. At the end of the lease contract, your lease agreement will usually stipulate that you’ll either have to lease the car again or buy the car off the lessor by paying the amount the car is worth (the residual value).

An operating lease is very much like a finance lease, except you’re not obliged to pay off the residual value of the car at the end of the lease. If you don’t want it anymore, you just hand it back to the lessor.

This can change at any time, but it’s unusual to be able to lease a car if it is more than 10 years old, or if it will have been driven more than 300,000km by the end of the lease term.

Yes, you can lease a used car, but not all used cars will be eligible for a car lease. However, these kinds of restrictions vary between lessors.

Applying for a car lease is a lot like applying for any other kind of finance. However, there some key differences:

• If you’re intending to get a novated lease, you’ll need your employer’s permission.
• It may also be a good idea to compare a few car loans with the lease you’re planning on applying for to ensure the lease truly offers a suitable solution for your needs (you may want to seek professional financial and tax advice to help you make that call).

Once you’ve done that, applying for a lease usually follows these steps:

1. Choose the car that meets your needs, wants, and the terms of the lease agreement.
2. Choose the lease provider and lease that meets your needs.
3. Fill in the lessor’s application form and provide the required documentation (usually proof of your identity, income, usual expenses, and debts).
4. Once approved, read and sign the contract.
5. Enjoy your car (and meet your payment obligations)!