A car lease (or ‘finance lease’) is a form of car finance which enables business owners, employees or contractors to have the use of a car (or commercial vehicle, motorcycle, or another form of suitable transport) and all the benefits of ownership, with the tax benefits that come from having another company (in this case the finance company) maintain ownership of the vehicle.
Exactly how does a car lease work?
It’s simple: You find a vehicle you want, the financier purchases it on your behalf and you then lease it back from them for an agreed (and fixed) monthly payment. When the lease is up, you can either re-finance the residual amount and continue a new lease on that vehicle for another set time period or pay a final instalment for the ‘residual value’ of the lease and take ownership of the car yourself. You then have the possibility to trade it in and upgrade to a new vehicle.
What are the benefits of a car lease? Why lease when you could just buy a car?
There are a number of cases where it’s better to lease a vehicle than buy one outright, including:
- You get flexible contract terms ranging from 2-5 years
- The interest rate doesn’t change
- The monthly payment doesn’t change
- All your costs are calculated in advance
- You can apply a residual amount to the lease (see the above section) which reduces your monthly payments
- If you use the car for business there can be tax deductions
- You can make lease payments in advance, which can be handy at tax time
Read our article on whether to lease or buy a car for more information.
Who are car leases suitable for?
- Sole traders
- Individuals who lease the vehicle to generate income
- Employees who are keen to use a Novated Lease as part of a salary package
Contact us today to talk to a finance specialist about which option is best for you, or read about other business car loan options here.