There are cost advantages and disadvantages to both buying and leasing a car. It all comes down to whether you want to keep the car, or prefer to "borrow" the car. Often this decision comes down to what sort of financing best suits your current and future requirements.

It’s a question of finance

Buying is car is what’s known as a capital purchase – you spend a large amount of money and in exchange you receive a valuable asset. The value of the asset depreciates over time and you can choose to recoup some of that value by selling the car. Alternatively, you may choose to keep the car indefinitely, until the asset has no resale value whatsoever. The theory behind lease financing is to take the value of a car and divide it over the assumed life of the car. This gives a theoretical yearly cost, which becomes your leasing expense. This makes a car an ‘operating’ expense in accounting terms. That is why car leasing is so popular with businesses.

By buying a car, you are free to sell it at any time. You have no direct financial penalties for ‘excess’ usage and fewer limits on insurance coverage required. However, you will face the costs of insurance and registration including Transport Accident Commission (TAC) compulsory third party insurance. But you can treat the car as kindly or roughly as you wish – dents and scratches won’t cost you, except in resale value.

A car lease agreement is typically 36 to 48 months. The down payment will be considerably less, monthly repayments are less, and you will probably save on sales taxes. If your heart is set on that mega-expensive luxury BMW or sporty Ferrari, a lease arrangement may be the practical option. If you wish to keep the car when the lease term is up, you may opt to refinance with the dealer and simply move from lease payments to loan payments.

If the car is to be used primarily for work, then leasing will provide greater tax benefits. It is often a good idea to seek the opinion of a qualified tax accountant, who will know the latest tax laws and options available to you. You may also be able to include a leased car in a salary package, even if it is for private use. Another option is a novated lease, which is a three-way agreement between you, your employer and the finance company. The finance company buys the car on your behalf and you pay them back over the lease term, 12 to 60 months. It reduces your income tax, and avoids GST on fuel, servicing, lease repayments and insurance.

A downside to leasing may be the limit on mileage. Lease agreements include a set amount of mileage, after which heavy imposts – or penalties – kick in. It is very important to check for such added costs before signing a lease agreement – what looks cheap at first glance, may not be the best deal for you going around. A lease contract may also include clauses for extra charges for "excess wear and tear" or above-average costs for additional mileage. Don’t hesitate to ask for an explanation of a clause if it raises concern in your mind.

As you can see there are plenty of savings to be made by leasing a car, whereas buying the car is a much more simple process and it’s yours for keeps. The specifics of your individual needs will determine which arrangement is best overall for you.