Car financing: Your complete guide

LESLEY PARKER December 11, 2010

Resale value is an important consideration when leasing a car, says the managing director of Glass's Guide in Australia, Santo Amoddio.

You want to be "square" at the end of a lease, not "upside down", where the car is worth less than the residual agreed at the start of the term.

But people tend to overestimate resale value, perhaps deliberately because they want to make their monthly payments more affordable, he says.

Amoddio says the average car loses about 50 per cent of its value over three years, possibly more if it has done a lot of kilometres.

Colour is another big factor in resale value. You may love the colour orange but silver, white and black are easier to sell.

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"Instead of buying [leasing] the base model and adding options, buy the model up," Amoddio says.

The options that add more value are those you can see, such as the spoiler and alloy wheels, rather than the invisible airbag.

Have the car serviced regularly and keep the maintenance records.

Dollars and sense

There's a bigger cost to buying a car than just the interest rate and fees. There's also the opportunity cost.

A financial planner with Multiforte Financial Services, Tony Clark, says when clients come to him about financing a car, usually with a novated lease in mind, he tries to get them to see the bigger financial picture.

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Whether the tax savings of a novated lease are real or not is one issue to consider. Clark says leases also tempt people to buy more expensive cars than they would otherwise.

That's because people just look at the monthly repayment and say, "I can afford that," without considering whether they really need a $40,000 or $50,000 car.

Clark gives the example of a client who was about to roll-over his novated lease. Clark pointed out to the client that, by lowering his taxable income, the existing novated lease had also reduced how much compulsory super his employer paid on his behalf by $2500 a year.

He suggested the man use the $20,000 equity he'd built up in his existing car to buy a $20,000 car outright.

The money that would have gone to lease payments on a depreciating asset instead went to pre-tax super contributions, which has its own tax benefits and which, in most years, increases in value.

Clark estimated the client could be $150,000 better off in five years' time by buying a cheaper car outright and contributing more to super.

The true cost of finance

Borrowing $30,000 over five years