To understand a finance lease?

Finance leases carry obligations for financiers and their clients. There are, therefore, questions lessees should ask before signing any agreement. Finance leases can make vehicle ownership affordable, and partnering with PAR Leasing can provide other benefits to the lessee.

Things to know before entering into a lease arrangement

Potential lease holders should not sign a lease before asking themselves important questions and ensuring that they understand some of the key terminology.

Leasing terms can be difficult to understand and some providers shroud leasing in a complex terminology. Below are some definitions that may assist you.

How should I best understand a finance lease?

  • Think of finance leases as pay-for-use agreements.
  • These contracts allow you to pay for the depreciation of the vehicle at an affordable rate over an agreed period of time.

Does leasing a vehicle affect my credit?

  • A finance lease will affect the applicant’s credit in the same way that a loan does.
  • Both trigger a credit inquiry which will assess the applicant’s ability to service the lease payments required.
  • A finance lease will impact the lessee’s credit score:
    1. Timely payment will increase the credit score
    2. Late or skipped payments will prompt a decrease in credit score

Capital/ Capitalized cost

  • Capital/ Capitalized cost refers to the purchase price of a vehicle, which varies from one car to another.

Capital reduction

  • Capital reduction, or Capital Cost Reduction, refers to the lesses making a down payment or contribution upfront to the purchase of the lease, which will reduce the total amount being financed. Lessees who do not wish to purchase/own the lease vehicle at the end, should look to exclude this from the agreement.

Residual Value

  • This amount is the amount due at the end of the lease term on the finance owed.
  • This amount is the responsibility of the lessee.
  • It is also linked to the estimated value of the car at the end of the lease, and maybe set according to ATO safe harbour residual guidelines.

Rate/Money Factor

  • Rate or Money factor refers to the interest rate that is applicable to the lease you are entering into.

Insurance Costs

  • Lease payments are lower compared with traditional loan payments, but higher insurance costs may offset these reductions.
  • Some lease providers will try to include unnecessary insurances within the lease structure, you must ensure that you understand all inclusions within the lease, and ask for Public Disclosure Statements (PDS) on all insurance products that are included in the lease.
  • You should also have the ability to exclude any insurance product that you deem to be unnecessary.


All leases involve the payment of fees. Fees to be aware of include:

  • Acquisition fees
  • Brokerage fees
  • Document fees
  • Delivery fees
  • Discharge fees
  • Management/Administration fees
  • Service fees such as Tyre or Fuel Card fees

If you are unsure of what a fee is ensure that you ask and what is included for that fee.


  • Clients, or lessees, bear the burden of paying maintenance and repair fees.
  • These may be included in the monthly rental that is payable as a budgeted amount, but ultimately any unbudgeted amounts will be at the cost to the lessee.


  • A lessee must ensure that they understand the termination clauses within the lease, both early term and at the end of the lease term.
  • Who is responsible and what charges or penalties may be applicable for the termination of the lease.
  • They must also understand what impact defaulting on the lease payments will have on their credit rating and what will happen to the vehicle.

Who Should Consider a Finance Lease

  • Finance leases are short-term agreements. Hence, they are practical arrangements for both businesses and individuals.
  • For those that wish to regularly update their personal or work vehicles to ensure that the image and safety of the company employees is maintained then a finance lease could be an option for you.
  • Those that are wanting no risk or a longer lease term, may be better suited to a different finance product for their vehicle needs.

Why Partner with PAR Leasing

Partnering with PAR Leasing can have numerous benefits to you and your business:

  • Tailored products and services to suit your business
  • Flexible lease terms
  • Personalised service all the way through your lease
  • Access to Australia wide network of dealers and service centres
  • Fully ATO compliant lease products
  • Reporting available to support your business in managing your vehicles
  • Competitive pricing and rates

Want to learn more or arrange a free quote?

Call 1800 532 732 NOW

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