Under a finance lease, work cars are purchased by the lender on behalf of the business – in simple terms, it’s like a “rental agreement” for the vehicle, where the owner (financial provider) leases it to a business for an agreed upon amount of time (and price).
Finance leasing is ideal for businesses looking for equity in vehicles, longer lease terms, and flexible loan solutions.
So, how does it work? What are the benefits of a finance lease? And why not just get a loan, for the amount of a new car? Within this article we’ll answer all of these questions – so that you can make the right call on which finance solution is most appropriate for your, your business, and new your new car.
Finance Lease, Asset Lease, Vehicle Lease, Car Lease – Are They All the Same?
Yes – finance lease, asset lease, vehicle lease, and car lease are all terms that can be used interchangeably – they all refer to the same type of financing option.
Finance and asset lease may also refer to different types of assets such as heavy machinery or equipment, not just vehicles. However, the principle is the same.
How Does a Finance Lease Work?
The way a finance lease works is pretty simple. When a business requires a new car for the purpose of business, they may approach a financial provider with the vehicle they have in mind. After agreeing to the terms of the lease, the financier will then purchase the vehicle and allow the business client to use the car as if it were their own, for the term of the lease. In return, the business will pay a deposit (if requested as part of the lease) as well as monthly payments to the financier, during the loan term.
The difference between a finance lease and a typical commercial loan is that the ownership of the vehicle lies with the financer provider, not the business, making it a more flexible option for businesses that are unsure about the long-term need for the vehicle.
Who Is Eligible for A Vehicle Finance Lease?
Vehicle finance leases are usually open to business owners, companies, and sole traders. Generally, anyone who requires a work vehicle will be able to apply for a finance lease.
Of course, there are some key factors that can affect eligibility — having a certain level of income, a good credit score, and ownership of valuable assets will make your application more attractive to finance providers. Generally, as long as you show a need for a vehicle for work, you could be eligible for a finance lease.
What Happens At the End of An Asset Lease?
At the end of a finance lease, businesses will be given the opportunity to take on the ownership of the vehicle by making a final payment amount equivalent to the residual value on the lease. Alternatively, businesses can choose to forgo this and trade the vehicle in for a newer model and proceed with a new finance lease agreement.
Either way, this provides businesses the freedom to choose whether they want to commit to having a vehicle as a permanent asset or use it as they require the vehicle.
The Advantages of a Finance Lease
Flexible term period
Lease term agreements can range from 12-60 months, giving businesses a wide time frame to decide how long they will need the vehicle for. This is especially beneficial for businesses that don’t have enough forecasting to be able to confirm whether they’ll still need the car or not down the line.
Predictable costs
With a finance lease, businesses will be required to make monthly payments based on a fixed interest rate, which means predictable repayments that can be budgeted for.
New vehicle
Finance leases apply to new cars, which come with their own host of benefits. Instead of worrying about performance or maintenance costs (like with second-hand vehicles), businesses can enjoy all the perks of the newest models – from comfort to warranty.
Choice of vehicle ownership
Having the option to own the vehicle after the end of the lease is a huge bonus, particularly if the business has the resources and use case to justify the purchase. It’s this flexibility that makes a finance lease so attractive for commercial vehicle use.
GST claims
GST is charged on the monthly payments and residual payment (to get ownership of the vehicle). For businesses that are registered for GST, there is the possibility to claim the GST as part of input credit in a Business Activity Statement.
Discuss Your Car Finance Options with Credit One
As Australia’s leading brokerage for exceptional car finance solutions, the team at Credit One can help your business source for the best terms for a car lease through our network of over 40+ approved lenders. Contact us today to get started with a quote or to talk to one of our car finance experts to learn more about our loan solutions.
