What is a finance lease?
A finance lease on a motor vehicle, allows you the lessee access and use of the vehicle while it is on lease.
While on lease, ownership of the vehicle remains with the Lessor (PAR Leasing), but with you making contributions to the finance of the vehicle in the rentals you are charged, which in turn builds your equity in the vehicle.
How does a finance lease work?
Simply explained, a finance lease is one in which a customer pays to use a car rather than buy it up front.
The lessor or financier (PAR Leasing) pays for the vehicle, and the lessee (You) pays to use the vehicle. This payment that you make includes a portion of the principal amount owed on the finance and interest attributed to the value of the finance amount.
At the end of the lease term the lessee will be responsible for the residual value owed on the finance and will have choices as to how this is handled:
- You may choose to pay out the residual value and take ownership of the vehicle
- You may choose to trade it in or sell the vehicle and pay the residual out using these funds
- Any amount over and above the residual value required will be yours as a tax free profit
- You may choose to re-finance the vehicle and continue leasing the vehicle
- Conditions around age and kilometers will need to be considered
Key Benefits of A Finance Lease
- A range of residual value options
- An extensive choice of lease terms
- Lease payment should be 100% tax deductible
- There is no GST payable on the purchase of the vehicle
- GST on the Lease Payment will be claimable
- Running costs included in the lease become GST free
- The interest rate on a finance lease is low because it is a secured finance
- You can use the equipment almost immediately
- A finance lease spreads the cost of capital items
- You may upgrade the car after the contract ends
Differentiating between leases
The lease options available to you are many and can be confusing. PAR Leasing are here to help you understand the options available and make recommendations to you based on your individual business requirements and circumstances.
An Operating Lease is for a set duration/term and distance to be travelled. PAR Leasing pay for the running costs included in the lease rental. At the end of the lease term the lessee returns the vehicle to PAR Leasing, there is no requirement of the lessee to purchase the vehicle or to payout the residual finance amount.
A Finance Lease is for a set duration/term, the lessee pays for the running costs of the vehicle, but the vehicle remains the property of PAR Leasing. At the end of the lease term, the lessee is responsible for the payment of the residual value amount owed on the finance. Once this amount is paid the vehicle is then owned by the lessee (you).