Are you in the market for a new car, but not sure whether to buy or lease? Both options have their pros and cons, so it’s worth thinking carefully before making a choice. Here are some things to consider before deciding which option will work best for you.
Buying with cash
Buying a new car with cash has some definite advantages. Firstly, the vehicle will be yours from the start — there are no ongoing payments to worry about, so you won’t be charged any interest. And if you’re buying the car for work, you may be able to claim a tax deduction for depreciation on the car’s value.
But depending on your situation, buying with cash might have some disadvantages as well. Because you’re paying for everything upfront, buying with cash could mean waiting for longer before you can afford the car you want — or compromising with a lower-quality vehicle. If you’re buying for business, buying with cash can have a big impact your short-term cash flow.
And if you want to upgrade to a new model later on, you’ll need to sell or trade in the car — usually for much less than you originally paid — then find the funds to buy a new one.
Financing with a loan
If you don’t have enough cash to buy a car outright, or you don’t want to spend a large sum of money upfront, a Consumer Loan (for individuals) or Chattel Mortgage (for businesses) could be ideal. You may be able to borrow up to 100% of the car cost upfront, including registration, on-road costs and even insurance, making even a premium vehicle much more affordable.
When you finance with a Consumer Loan or Chattel Mortgage, you own your car just as if you’d paid cash for it, with the added advantage that you can pay your car off gradually over time. You may prefer a Hire Purchase, where the lender owns the vehicle until you make the final payment. What works for you will depend on your situation, whether you buy your car for business or personal use and your overall goals, so you should seek expert advice from your accountant on the tax implications of your choice.
Whichever option you choose, you can reduce your monthly payments by either paying a higher initial deposit or making a larger ‘balloon payment’ at the end of the term. And for business vehicles, your interest and borrowing costs may be tax deductible, along with depreciation, making your new vehicle even more affordable.
Leasing your vehicle
Another option is to use a Novated Lease or a Finance Lease. Depending on your situation, a lease arrangement can be very tax effective, with the flexibility to upgrade to a new model at the end of the finance term.
With a lease, the lender owns the vehicle while you make lease payments over a set term. At the end of the term, you can return it in for the latest model. As with a loan, you may also be able to tailor your finance by making a larger residual payment at the end of the term. Plus, with a lease you don’t pay anything upfront.
If you’re looking to buy a car through a salary package, then a Novated Lease could end up saving you a lot. That’s because you can generally make the lease payments from your pre-tax salary, effectively reducing the cost compared to buying a car with your after-tax income. And a lease can have tax benefits for businesses too, with no GST added to the cost of the car and tax-deductible repayments.
But tax laws are complex and everyone’s situation is different, so be sure to consult your tax adviser before you make a decision. And remember, your Volkswagen Business Manager is also there to help you find the best option for your individual circumstances. Simply contact your nearest Volkswagen dealer to arrange an obligation-free consultation.
Please note that this information is general only, you should not rely on it, and you should consult your accountant/financial advisor for specific advice before pursuing any course of action.
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