Are you considering a lease for your next car? Not sure what leasing is? Depending on your own situation, there are a number of ways you can lease a car. There are options for leasing for both personal and business customers to take advantage of.
When you lease a car, you are technically renting the car back from the lender. This means that the vehicle is not considered an asset to you, just an expense. Though for most lease options, the car is physically registered to you. For some people, particularly businesses, this can be an advantage. All they have to worry about come tax time is working out how much of the lease payment they claim as an expense. They also do not have to worry about paying tax should they profit from the sale of the vehicle.
Most leases require you to have a balloon payment, or residual value, owning at the end. This is because you are not meant to have any equity in the car. So by having the balloon payment, your repayments are not enough for the balance of the lease to go down by enough to give you any ownership in the car.
If you use your car for business use, you can take advantage of either a Finance Lease or an Operating Lease.
The main difference between the 2 is that in an Operating Lease, you are required to hand the car back at the end of the term. If you want to own the car, you have to buy it back from the lender at a price nominated by them. Usually for market value. In a finance lease, you only have to pay the balloon amount to own the car. This amount is generally below market value of the car.
Those who do not use there car for business use can take advantage of either a Personal Lease or a Novated Lease.
A personal lease is usually a more flexible leasing option compared to a finance lease. It can have a lower or no balloon payment and you can put a deposit on the car and only finance the balance owing. For these reasons it is not a lease for tax purposes, but offers a lease structure to private individuals.
A Novated Lease is a finance lease that also has a Novation Agreement attached that an individuals employer signs to make it a 3 way agreement between the employer, employee and the lender. The advantage of this is that the employee can salary sacrifice part of there pre tax income to get a tax savings they may not otherwise have been entitled to.
Speaking to a leasing consultant will help you decide which way is the best for your to finance your next car.
Article Tags: Balloon Payment, Finance Lease