The Downsides of Leasing a Car in Australia
Leasing a car is an appealing option for many individuals and businesses in Australia, it is the only option that has been present for decades. It offers the ability to drive a new vehicle without the burden of ownership; however, for some, it can catch you off guard with extra expenses that can occur.
Motopool discusses the pitfalls of leasing cars and why a car subscription service can offer you more peace of mind and a better all-around service while being kinder to your hip pocket.
While car leasing may seem cost-effective initially, it's essential to consider the upfront and ongoing expenses choosing to lease a vehicle can bring. Upfront costs typically include a security deposit, initial lease payments, and other fees throughout the lease agreement.
Additionally, individuals or businesses may be responsible for maintenance costs and must sometimes adhere to a predetermined yearly kilometre limit. Exceeding these limits can result in substantial fees at the end of the lease term.
What Are Balloon Payments and How Do They Affect My Lease
One of the significant downsides of car leasing in Australia is the prevalence of balloon payments. A balloon payment is a large, lump-sum payment due at the end of the lease term.
While this allows for lower monthly payments, it can catch many businesses and individuals off guard, especially if they haven't adequately prepared for this substantial financial burden. Discovering that you still owe thousands on the vehicle years after the lease can be a big shock.
These balloon payments will often transfer to a new lease agreement, leaving some individuals and businesses out of pocket for an amount worth more than the car itself. If you are considering a lease, it is imperative to carefully evaluate whether you can afford the balloon payment now or in the future to prevent substantial financial strain at the conclusion of the lease.
Rolling over balloon payments can cause many businesses to fall into a trap, that can have them owing thousands many years later.
What Is A Novated Lease or Salary Sacrifice Car?
A novated lease is an agreement with your employer to lease a vehicle. Your employer holds the lease with the financial provider and will take the agreed amount from your salary to pay for the car. This will allow you to only pay for the vehicle’s usage.
Sometimes, you can also add ownership costs into this amount, such as maintenance, registration and fuel. However, most will only allow you to fuel up at a particular chain of service stations.
What Happens at the End of the Lease?
When your lease ended, you can also look at purchasing the car with a payout amount or extend the lease agreement. However, you need to pay off the car to own and many times, these leases are bundled with annual kilometre restrictions and even personal use limits.
The lease is also tied in with your current employer, so if you choose to leave your current employment, your car will go with it or in some instances, you will still be liable for making lease payments. For this reason, you must read the fine print – no matter how long and boring it may be. When choosing any lease option, knowing exactly what you are signing is paramount to ensure you do not fall short if you decide to change employment.
The Downside of Leasing For Employees
A novated lease is a big winner for your employer – but perhaps not so much for you. Other cons include:
- You cannot claim it as your asset for additional borrowing.
- It can cost as much or more than a traditional car loan at the end of the lease.
- You will incur account fees, repayments and additional charges.
- You may be locked into the entire lease period even if you are not using the car.
What Is A Commercial Car Lease?
This is for business owners wanting to company car without the outlay of purchasing outright. Commercial car leases typically run between two to three years, but some can be offered as little as 12 months or as long as five years. However, once the lease is up, you will be required to pay the residual value estimated at the lease's beginning.
If your car is worth less than the amount your finance company estimated it would be worth at the end of the lease, which in most cases it is, you will be expected to pay the difference or transfer this amount to your new lease.
The Resale Value could be much lower than the initial estimate due to many factors, including car accidents, the odometer reading, and just the industry as a whole.
What's Included in Commercial Lease?
Commercial leases also do not cover any maintenance, repairs and general vehicle costs. Some do cover basic things such as servicing, tyres and registration; however, it is vital to check the details of your lease.
Restrictions with Lease Agreements
Leases often come with strict kilometre limits, and exceeding these limits can result in hefty fees at the end of the lease term. This can be a significant drawback for individuals with unpredictable driving patterns or businesses with employees who cover considerable distances for work. Estimating kilometres accurately and negotiating realistic limits upfront with your employer or financial institution is crucial.
Understandably, a car that has travelled 20,000km will be worth much more than the same model with 40,000km on the odometer.
There can also be end-of-lease penalties that can incur unexpected costs. Businesses and individuals can be penalised for excessive wear and tear, even if it's considered normal wear and tear for a vehicle's age.
It is highly recommended to scrutinize the lease agreement for details on acceptable condition standards to avoid unpleasant surprises. Lease agreements also have limited flexibility, seeing many businesses and individuals being locked into an agreement that no longer suits their needs. This can lead to frustrations and financial strain.
Car Subscription vs Leased Vehicles
It offers all the benefits of car ownership without the long-term commitment and hassles associated with buying or leasing a vehicle. Undoubtedly, car subscriptions are changing the way we approach driving.
A car subscription service provides the best of both worlds – the perks of car ownership without the commitment. This allows many individuals and businesses the freedom and convenience of having a vehicle at their disposal without being tied down to a long-term contract or maintenance costs. Plus you can easily switch vehicles as your needs change.
What’s Included in Car Subscriptions?
With a car subscription, a single payment covers everything related to the car. All the hassles typically associated with ownership, from maintenance and insurance to roadside assistance, are taken care of. You only need to worry about fuel, making the entire experience remarkably convenient.
It’s also straightforward to set up! Motopool offers a brief online sign-up process, including a quick ID and credit check that takes a few minutes. Immediate approval and a confirmed refundable security deposit give you the peace of mind to move forward when you're ready without any unnecessary commitments.
You can also choose your vehicle with many car subscriptions offering a range of diverse cars for commercial or private use. So, whether you prefer small and economical hatches, family SUVs, or versatile vans, there's an option for everyone. With no long-term commitment, you have the flexibility to switch vehicles as your needs evolve.
What Are The Car Subscription Options
Car subscriptions also offer flexible plans. At Motopool, we offer three tiers of car plans the: starter plan, the value plan, and the premium plan. Each plan covers your usage and includes a capped kilometre allowance, ensuring you pay only for what you use. This flexibility allows you to choose a plan that aligns with your lifestyle and driving habits.
Once you've selected your plan, you can pick up your car and hit the road. Motopool ensures that all vehicles are detailed and have a full fuel tank. With 24-hour roadside assistance and the support of the Motopool Concierge team, you can rest assured that help is just a call or email away, providing peace of mind throughout your subscription.
As you navigate the complexities of car leasing in Australia, it's essential to consider all your options. If you're seeking a more flexible, cost-effective, and hassle-free solution, a car subscription service like Motopool might just be the answer.
Discover a smarter way to drive that aligns with your lifestyle and financial goals, without the surprises and constraints of traditional leasing. Explore Motopool’s diverse range of plans today and join the revolution in smart, sustainable mobility.
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