Deciding whether to buy or lease a car is not as easy as it might first seem.
Deciding on which finance option is going to work for your business can be tricky. Your decision will have an impact on your short term financial position and perhaps even your long-term financial situation.
Beyond financial factors, you also have to consider your individual or business needs.
Car leasing comes in various forms. In Australia, there are three basic kinds of leases available. Each type of lease is specifically towards a particular buyer or leasing need.
In order to decide which leasing option is going to suit you best, let’s have a look at three common kinds of car leasing.
Animated lease is often an ideal way for an employee to be able to afford a new vehicle. A novated lease will enable you to finance your purchase using the pre tax component of your wage.
What this does is maximise your buying power by being able to use money that would have otherwise been paid in tax. Because it reduces your overall gross income, it also reduces your tax liability.
One of the good things about a novated lease is its simplicity. A novated lease is simply a three-way agreement between your boss yourself and the financial institution.
A novated lease has minimum administrative requirements and is usually simple to set up.
With a finance lease, the car is usually purchased by the financial institution and then rent it out to the one who is borrowing it.
In Australia, with this type of car leasing arrangement, monthly installments are paid in order to maintain the lease agreement. This is a typical loan type for business.
Here, the monthly payment is usually fixed, and if a purchase is made at the end of the term, a residual amount is payable.
The car is purchased in the usual way, which is to say, via negotiation between the buyer and the car dealer. Once the car is purchased, the financial arrangement is structured but with Financial Institution that is lending the money – not the driver.
An operating lease is a lot like a financial lease mentioned above. Only, in this case, the borrower does not take on the responsibility to pay the residual value of the car at the end of the lease.
Instead under an operating lease, the car is handed over to the financial institution.This means that the borrower does not have to does not have Deal with the issue of paying out the residual portion of the cars value or refinancing.