car with loan

Car Financing vs. Leasing: Which Option is Best for You?

Buying a car is one of the biggest purchases most people make in their lives, and it’s essential to choose the right financing option. Two popular options are car financing and leasing, and it’s essential to understand the pros and cons of each before making a decision. In this article, we’ll explore both options and help you determine the best option for your car financing needs.

Car Financing:

Car financing, also known as a car loan, is the traditional method of purchasing a car. It involves borrowing money from a lender, usually a bank or credit union, to purchase a car. The loan is repaid in monthly installments over a fixed period, typically three to five years.

One of the main advantages of car financing is ownership. When you finance a car, you own it once the loan is paid off. This means you can customize the car, sell it, or trade it in whenever you want. Financing also gives you more flexibility in terms of how you use the car.

However, car financing also comes with some disadvantages. The interest rate on the loan can vary depending on factors such as credit score, loan term, and the lender. Additionally, the car will depreciate over time, which can lead to negative equity, where the car is worth less than the remaining loan balance. Finally, financing a car can be more expensive in the long run, as interest and fees can add up over time.

Car Leasing:

Car leasing is an alternative to car financing that involves renting a car for a set period, typically two to four years. During this time, you make monthly payments to use the car, and at the end of the lease, you return the car to the dealer.

One of the main advantages of car leasing is lower monthly payments. Because you’re only paying for the use of the car, not the entire value, monthly payments are often lower than those for a car loan. Additionally, leasing allows you to drive a newer car, as you can lease a new car every few years.

However, leasing also has some disadvantages. You don’t own the car at the end of the lease, so you can’t sell or trade it in. Additionally, leasing often comes with mileage restrictions, and you may face penalties if you exceed them. Finally, leasing can be more expensive in the long run if you continue to lease cars, as you’ll never own one outright.

Choosing the Best Option for You:

So, which option is the best for you? It depends on your individual needs and preferences. If you value ownership and flexibility, car financing may be the best option for you. However, if you prioritize lower monthly payments and driving newer cars, car leasing may be the best option.

At Journey Finance, we can help you determine the best option for your car financing needs. Our team of experts can help you compare financing and leasing options, as well as negotiate the best deal possible. Contact us today to learn more about how we can help you make the best decision for your car financing needs.


Handing over income tax

How Novated Leasing saves income tax

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Just about everyone who earns income pays tax.  

Your gross salary (salary before tax is calculated) determines how much you pay, and it is calculated each pay cycle.   Our tax system works progressively. That is, the more you earn, the higher the percentage of tax you pay from your earnings.  Our tax system also deducts tax each time you are paid. This is known as Pay As You Go (PAYG).  
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Gross Salary per fortnight

$1500.00

Taxable Income $1500.00
Superannuation $142.50
Minus: Income Tax $162.00
Minus: Medicare Levy $30.00
Take Home Pay $1308.00

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The more gross income you have or if you worked overtime, or got a bonus or commissions, the more tax you will pay in that pay cycle.

Can I reduce my taxable income?

The only legal way to reduce your gross salary is through something known as deductions.

If you have worked throughout the year and earned an income you would complete your tax return (end of financial year at June 30) This is essentially an audit to ensure you have either paid enough tax, or paid too much.

Depending on your deductions you may get a tax refund.  A tax return is the ATO giving you a refund of ‘overpayment’ of tax collected throughout the year.  That is; if you paid $10,000 in tax, but at tax time it is found that you only should have paid $9,500 in tax – you will get a refund of $500.

Novated lease equals tax deductions - every pay

With a salary packaged novated lease the annual total for your finance and running cost budgets (fuel, servicing, tyres, insurance, registration and CTP and roadside assistance) are turned into a fortnightly/monthly budget and a portion of this total is deducted from your gross salary each pay.  For example, the fortnightly cost for this car is $250 per fortnight.
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Gross Salary per fortnight

$1500.00

Superannuation $142.50
Salary Packaging Deduction $250.00

New Taxable Income

$1250.00

Minus: Income Tax $128.00
Minus: Medicare Levy $25.00
Take home pay $1122.00

Difference: 

$39.00 per pay

Difference 12 months:

$2028.00

Difference over 5 year term

$10140.00

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The benefit explained

In the first example $162 was paid in tax and $30 in Medicare.  In the second example, salary packaging was applied ($250 package for a car and it’s running costs).

This reduced the taxable income to $1250.00 saving $39.00 in tax on that pay.

A full $250.00 of value was still there to pay for all the costs of the car, but in fact in only cost $211.00

If you did not salary package – the car would still cost $250, but you would be paying these costs from your after-tax salary.

This effectively gives you an instant tax refund each pay – more than what the average taxpayer would be able to claim at the end of the year if they used their car for work.

With salary packaging - you do not need to keep logbooks and can use your car 100% for personal use.   Fully legal and approved by the ATO.
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This example is for illustrative purposes only. You should seek financial advice to see if salary packaging or a Novated Lease suits your personal circumstances
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