The Joyful Frugalista by Serina Bird

The Joyful Frugalista by Serina Bird

Author:Serina Bird
Language: eng
Format: epub
Publisher: Allen & Unwin
Published: 2018-12-18T16:00:00+00:00


LEASING VERSUS BUYING

I want to briefly touch on the issue of how to buy a car. I have the option through work to salary sacrifice to ‘buy’ a car, provided it is a new vehicle or a vehicle that is under two years of age. The arrangement works on a leasing system.

The company that manages the salary sacrificing arrangement on behalf of my work does a brisk business with this scheme. I suspect it is much more popular than other products they offer, such as salary sacrificing for superannuation. Salary sacrificing is a system whereby your employer allows you to pay for some items from your pre-tax salary, which reduces your taxable income and therefore leads to money saving.

My ex-husband wanted to buy a new car at one stage and argued that, because of the salary sacrificing, it would be cheaper than keeping our existing car. When I did the sums at that point I concluded that we would not, in fact, be saving money. However, it depends on many variables.

Neil is nearing the end of a salary sacrificing lease arrangement for his ute. Since he has actually leased, and as he is crunching numbers with a view to purchasing a new vehicle next year (one that we can use to tow a caravan, and one I can actually drive), I asked him for his insights. He said that leasing can be beneficial because you get the tax advantage of paying via salary sacrificing. You can make additional savings by paying pre-tax dollars on fuel, maintenance, registration and running costs.

Another advantage is that many companies that run leasing options have good relationships with car dealerships and can negotiate a good price. Obviously, if you are a good negotiator in your own right you might not need them to do this for you, but every little bit helps.

A leasing arrangement works best for people on higher incomes. But according to Neil, the advantages are not as good as they used to be because you need to pay fringe benefits tax if you drive more than 15,000 km a year.

In Neil’s experience, you don’t get a choice of finance companies and often they charge rates that are slightly higher than other lenders. Also, there is a monthly fee that you need to pay to the leasing company. And you don’t get to choose where you fill up with petrol.

You might not own your car, but you still have to pay out the residual value on the car when the lease term is up. The residual value goes down dramatically towards the end of the fixed lease period, which makes it financially disadvantageous to sell your car early. People’s lives change: you might suddenly get a job overseas, or go back to full-time study, or have children and need a people mover. As such it can sometimes cause a problem if you’re locked into a leasing arrangement.

Every situation is different and, if you are considering a leasing arrangement, you should crunch the numbers and compare various deals.



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