Rent-to-buy and novated leasing - cars

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In a typical rent-to-buy arrangement, you will be offered the option of purchasing the car you are renting. However, the money you pay (usually in instalments) to rent the vehicle, does not go towards its purchase price. Depending on the rent-to-buy contract, you will only own the vehicle after you: 

  • conclude all payments 
  • pay a nominal sum, or 
  • pay fair market value for it.

Rent-to-buy deals may appear attractive but they generally target lower income earners, or those who may have been rejected by a financial institution and cannot afford to buy a car outright. 

To avoid problems, familiarise yourself with the contract terms and conditions. Find out: 

  • who will be responsible for paying the car’s registration and any mechanical repair or maintenance costs during the rental period 
  • if the vehicle registration will be transferred to your name when you purchase the car
  • in what circumstances (if any) the title will be transferred 
  • whether you can terminate the contract and, if so, on what conditions 
  • the costs payable at the conclusion of the instalment payments.

Most importantly, calculate the total price you will pay under the contract as you may not be getting value for money. You may be left with residual costs of the agreement that far exceed the car’s true market value. 

You should always consult a financial counsellor or obtain legal advice before you enter into a rent-to-buy contract. 

Novated leasing

Your employer may offer you the option of leasing a vehicle by effectively sacrificing a portion of your salary. This is known as a novated lease, which typically lasts three years. At the end of the three years, the lease is terminated and the car sold.

When you lease a vehicle, you do not own it. However, you will be responsible for the operating costs incurred during the lease period. As a vehicle operator, you will be responsible for any fines or infringements associated with the vehicle.

Before you sign, it is important that you understand the terms and conditions of the leasing package.