Purchase or Lease a car – could you please share your thoughts on the best way to finance a car.
I am currently overseas returning to Australia next month and need to buy a family car. I will be setting up a corporate trust to control/hold my property investments. The car will be for personal and business use (property investing).Estimated car cost is $30k. I'd rather put the $30k to work in my investing portfolio than tire it up in a depreciating car.
Would anyone recommend leasing the car instead of purchasing?
Would part of the lease costs be a valid tax deduction?
I'd be interested in hearing how others have purchased/leased their car's.
Thanks,
AdamWe have just gone through the numbers for the same question. Although alot of people say leasing so that you can claim tax deductions I don't understand the logic in losing money in a consumable item which goes down in value so that you can save tax!
I thought that the most cost effective way was to buy a car that was 3 or 4 years old outright! Some other sucker would have worn the depreciation (and claimed the tax) and you can have a nice car at half the price of buying it new!
Hi Adam,
We have been through his quandary too over the years and eventually we came to the conclusion that it is better to buy a second-hand car, outright if you can afford it. Perhaps let your trust purchase it so claims can be made too but I would suggest you speak to your accountant – or get one – here in Australia. We have leased many cars and always hate practically giving them away at the end of the day, we also still make the mistake of buying new cars but we always promise ourselves we will never do this again. I wonder when we will take notice of our own advice?
I wish you well.
Debbie
One of my pet hates – cars.
It is a financial mistake to ever buy a new car – leased or for cash.
When you drive it out the lot you have done up to 20% of the value of it COLD.
Many people think they are clever leasing a new car because the repayment interest and the depreciation are tax deductible. They are not clever.
Many people lease an expensive car to impress other people. No-one cares, and worse; people like me think they are stupid. On top of that; people dent the doors in parking lots.
A car payment has to be paid whether it is tax deductible or not. It is a business expense, a liability, and impacts on the business cashflow. A car payment restricts your ability to borrow money to buy more investments.
A car depreciates and provides no income. The cost of running the car can be as much as the car payment itself – double dumb.
The less you pay for a car the better. Spend about $10k maximum and put the rest into an appreciating and income producing asset – property, business or shares.
Read Stanley and Danko's "Millionaire Next Door" and see what they say about the type of cars the average millionaire drives and how much they cost.
Absolutely agree with Marc…though if you do want to get a relatively new car, go for something about 2-3 years old still in warranty, less than 50,000 km. It's as good as new for reliability, etc but the price will be 30-40% less. Don't get a 6 cyl, go a 4, you'll save heaps on running costs, and depreciation is generally better (less) too. A $25k new 4 cyl car will be around 14-17k after 3 yrs.
Whether to lease or buy depends upon your cashflow requirements, ie can you use the cash for something better, ie a deposit on a property? And tax deductibility.
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