New Zealanders depend heavily on their cars, with one of the highest car ownership rates in the world and a very limited bus and rail system, however with the cost of living rising, including higher fuel prices, cars are becoming less affordable and as such the public are starting to look at other ways to finance their vehicles. Car leasing is one of these methods growing in popularity.

Put simply, car leasing, also referred to as auto financing, is when a financier purchases a vehicle on behalf of a customer and then leases it to them to use over an agreed period of time, usually 2 to 5 years in return for monthly rental payments. The finance company keeps ownership of the car and when the lease term is up the customer has the option to either buy the vehicle for it’s remaining value, trade the vehicle in or re-new the lease and re-finance the remaining value.

Traditionally, car leasing was used by big businesses that needed a fleet of vehicles, but didn’t want to invest in such a large, continually depreciating asset. By leasing their vehicles they wouldn’t have the initial huge outlay of capital to buy the cars and they could renew them every few years without hassle. They would also take advantage of other benefits provided by car leasing.

The advantages of car leasing, that financier’s promote is the lower monthly payments than that of a normal loan. As you are only paying for ‘use’ of the car for a specified amount of time and not the full value of the vehicle, the monthly payments are much lower.

There can also be taxable benefits for employees who have the company car leased as part of their salary package. Depending on the type of lease, your payments can be deducted from your pre-tax salary, bringing down your taxable income and therefore meaning you pay less tax.

Another benefit of car leasing is you can correspond your contract length with the length of the vehicles warranty, which means you will have constant cover if anything major goes wrong. Of course, this refers to problems from a manufactured point of view and not accident damage such as body dents and scrapes or windshield repairs etc that you (or your insurance) would be responsible for.

Once the preference for large companies, car leasing is now very popular amongst individuals and small businesses that are taking advantage of the potential benefits of car leasing and avoiding some of the costs of car ownership. However, while car leasing sounds like a winning situation, it’s not an option that works for everyone and it’s important not to jump into it simply because it saves you initial capital.

Leasing contracts usually have a kilometer limit and exceeding this limit incurs fees. Therefore, if you are going to be using the car a lot and driving long distances, leasing is most likely not a good option. Also, in most cases, if you opt to buy the car outright when the lease term is up you will end up paying more than if you had bought the car in the beginning. It’s also important to understand that you are entering a contract and breaking this contract can come with a hefty price tag.

Mildred Potts writes for a digital marketing agency. This article has been commissioned by a client of said agency. This article is not designed to promote, but should be considered professional content.