Car Ownership 101: Car Lease or Car Loan?

Over 16 billion dollars. That’s how much Australians borrowed to buy motor vehicles, according to the Australian Bureau of Statistics, as reported in The New Daily in January this year.


As of November of last year, this figure can be further broken down into $6 billion borrowed to buy used cars, $8.5 billion to buy brand new ones, and the rest were funnelled into other types of motor vehicles.

Car Key

Driving Down Under

It seems that a lot of Australians are getting themselves a set of wheels. As of January 2018, a total of 19.2 million motor vehicles were registered. This shows a 2.1 percent increase from last year’s figures and shows how the national fleet has expanded.

These figures indicate that people are still open to buying cars, and there are many brands, makes and models for them to choose from.  Buyers who are considering finance may question whether a loan or car lease is the better option.

Loan or Lease: That is the Question

To loan or to lease? While some may finance with a lender, either through a dealership, broker or direct with the financier themselves, others may question whether a car loan will be better value for their money.

Not everyone is well versed in financial terms or vehicle ownership jargon. That is why customers can find themselves lost when sales officers in car dealerships start talking about chattel mortgage, repayments schedule, comprehensive insurance, and the like. Others – such as dedicated representatives of a finance company – are more thoughtful and try to walk the customer through the terminology, patiently explaining the whats, whys and hows of owning a car.

Car lease and car loan are two such terms that have confused many a car buyer. To make the decision-making process easier for you and to guide you along the vehicle purchase process, here is a quick and easy reference:

Car Lease

If you will be using the vehicle you intend to buy for business purposes – at least 50 per cent of the time – then you may want to consider a car lease.

A car lease works when a financier acquires the vehicle on your behalf. You will then lease the vehicle from the leasing company and pay a fixed monthly rental fee for the term of the lease.

When the lease contract has been concluded, you have the option to pay a residual value (final instalment) on the lease and take ownership of the car, trade it in for another vehicle, or re-finance the residual and continue the lease.

Benefits of a Car Lease

  • Flexible contract terms ranging from 12 to 60 months (one to five years)
  • You can choose to set a final balance (residual value) payment to reduce monthly repayments.
  • As the GST of the car’s purchase price may be claimed back by the financier, only the car’s price exclusive of GST is financed, lowering monthly payments.

If you need your car for business purposes, you may be better placed to use a chattel mortgage.

Car Loan

Also referred to as a secured car loan, this involves you borrowing money from a finance company to purchase the vehicle. You’ll take ownership of the car and the financier takes an interest in the vehicle as a form of security.

The interest is lifted once the contract is completed. You will then own the vehicle as long as the final repayment has been made since the loan is secured against the vehicle.

Benefits of a Car Loan:

  • Fixed interest rates, which mean you’ll always know your repayments.
  • You can enjoy a flexible loan repayment period. Terms can range from one to seven years.
  • You may also opt to reduce monthly repayments. Check with your finance broker if you qualify for a balloon or residual payment.
  • Take advantage of a significantly lower rate on interest as the loan is being secured against the vehicle.

The Choice is Yours

Since the definition and benefits of both a car lease and car loan have been streamlined for your easy understanding, you can now breathe easier. Knowing that you have a better grasp of what to expect, you can be more confident and empowered to make the best decision according to your needs.

To make things easier, you can always call your trusted finance company partner. With their wealth of experience and expertise, you can be sure that you are saved from overwhelming terminologies when it comes to purchasing a car.


Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.