New cars are exciting but they’re also quite expensive. Very few Aussies have $30,000 to $40,000 in cash just lying around waiting to be spent on a new car. So for most people, a car loan is necessary. However, did you know that there’s another type of car financing that could allow you to drive the car you want with an even lower monthly payment? It’s called an operating lease.
What Is A Traditional Car Loan?
A typical car loan simply divides the entire purchase price of the vehicle over a set number of monthly payments. In addition to this cost, a percentage of interest is added to each monthly payment. This is profit collected by the lender for the convenience of accessing a lump sum of money you might not otherwise have been able to produce.
What Is An Operating Lease?
According to Toyota Fleet Management, “An operating lease allows a vehicle to be leased over a fixed term, with defined kilometre usage. At the end of the term, the vehicle is handed back with no residual value liability. Toyota Fleet Management assumes responsibility for vehicle acquisition, disposal and risk of ownership under an operating lease.”
So what does all this technical jargon mean for you, the end user?
When you buy a car, even a certified pre-owned vehicle from a dealership, you’re responsible for paying for maintenance and repairs. The warranty may cover some of these costs, although you’re likely to still be required to pay a flat service fee. When you choose an operating lease instead of a car loan, all of these maintenance costs, including tyres, registration, and fuel management, are included in your monthly payment.
Ability To Trade Up At Your Convenience
Operating leases typically last only a few years. At the end of this period, you have the ability to turn the vehicle back into the financier, and start a new lease with a new vehicle. If you’re the type of person who always like to be driving the latest and greatest car on the market, this is probably an attractive option for you. When you choose a traditional car loan, however, you’re responsible for making your payments all the way until the end of the loan or finding a new seller who’s willing to pay at least the remainder of your loan.
No Loss Of Value During Resale
As we implied above, the only way to get out of a traditional car loan before you’ve made all the payments, is to find a buyer who’s offering enough to pay off your balance. The only problem is your car will be older and more beat up, and it’s likely that it will have lost some of its original value. When you choose an operating lease, however, you don’t have to worry about resale. All of that is left up to the financier to decide when your lease is over.
Want to know more about the benefits of an operating lease over a traditional car loan? Contact Fleet Point today!