If you're looking to purchase a car, you may be wondering what the differences are between leasing and a hire purchase. Both can offer different financial benefits and drawbacks depending on your needs.
Let's break down the key differences between these two options to help you decide which is right for you.
What is car leasing?
As this car lease vs hire purchase guide from Westpac explains, car leasing is essentially a long-term rental of a car. It usually involves an agreement that requires you to make payments over the course of 12-48 months. Once the agreement has been fulfilled, you then hand the car back to the leasing company with no additional fees or commitments.
What is a hire purchase?
Hire purchase is a bit different from leasing in that the agreement requires you to pay off the full cost of the car before taking ownership. This usually involves monthly payments over a period of 12-48 months, with the last payment being for the deposit. Once this has been paid off, you will take full ownership of the car.
What is the difference between leasing vs hire purchase?
The main differences between leasing vs hire purchase are in regards to ownership, cost and flexibility.
With a lease, you never actually own the car, meaning that if any major repairs or servicing needs to be done, it will fall to the leasing company. On the flip side, a hire purchase allows you to own the car outright once all payments have been made, giving you more freedom in terms of repairs and servicing.
In terms of cost, leasing can generally be more affordable than a hire purchase as the monthly payments are lower and there's no need to pay a deposit. However, with a hire purchase, you do have the opportunity to own the car at the end of your agreement, which can be a great way to build up equity.
When it comes to flexibility there are pros and cons for both options. Car leasing is generally more flexible in terms of the length of the agreement and you can often upgrade cars more quickly than with a hire purchase.
However, a hire purchase does give you greater freedom in terms of customising the car and you won't be tied into a long-term agreement.
Tax is another area where there are differences between leasing and a hire purchase. With a lease, you'll be able to claim back any VAT on the car, while with a hire purchase you won't be able to do this.
In conclusion, when it comes to deciding between leasing vs a hire purchase, you need to weigh up the pros and cons of each option to determine which is best suited to your needs. Consider factors such as cost, flexibility, and ownership to help you make the right decision.
Whichever option you choose, be sure to do your research and make sure you understand all the terms and conditions before signing any agreement.
How to go about leasing a car?
Leasing a car is a straightforward process. You will need to decide on the type of car you would like, agree on the length of your lease and make sure you are aware of any upfront costs or fees associated with the agreement. Once you have done this, you can start shopping around for the best deals from car dealerships or leasing companies.
When you have chosen a car and a leasing company, they will then draw up an agreement for you to sign, and then you can begin making your monthly payments.
It is important to remember that leasing a car does not give you the same rights as owning one, and you should check that you have all the necessary insurance in place.
When it comes to choosing a leasing company, here are some important things to keep in mind:
- Transparency: Make sure the leasing company is transparent with their prices and fees. Oftentimes, they can add on hidden fees which may not be obvious until it is too late.
- Location: Some vehicle brokers operate from their houses, which can be difficult to access if you have a problem with your car. Try and find a leasing company that has a physical office or showroom you can visit.
- Reputation: Research the leasing company's reputation online and read customer reviews to make sure they have a good track record of delivering on their promises.
- Customer service: The quality of customer service can make a big difference to your experience, so look for a leasing company that is committed to providing you with great service.
- The time they've been in the business: Experience is always a key factor when choosing a leasing company, as those who have been in the industry for longer will usually have more experience.
On the contrary, new companies can fail, leaving you without your car or the money you've already paid. Here are some of the largest leasing companies in Australia.
Leasing a car can be an attractive option if you don't want the commitment of buying one outright. However, it is important to consider all of the factors carefully before committing to a leasing agreement, as it is still a financial commitment.
Hire purchases are a reasonable alternative to leasing a car, and we hope this article has made the difference between the two very clear for you.
For more helpful financial advice, check out this post on Find The Right Tax Strategy For Life Insurance.
24 November 2022