While there has been a lot of requests for Chattel Mortgage car finance by our business customers wanting to take advantage of the Instant Asset Write-Off, car leasing still remains a very popular form of vehicle finance. We continue our analysis of different types of finance with a break it down look at motor vehicle leasing.
Leasing is a very commonly-used form of finance for the purchase of a wide range of assets including motor vehicles to be used in a business. Many of our Jade Car Loans customers request leasing as their form of finance for passenger cars, executive vehicles, utes, light commercial vans, wagons and SUVs. Leasing can be used for the purchase of the full range of business vehicles.
Concept and Defining Features
- With Leasing, the lender actually purchases the vehicle and leases it back to the borrower. This type of finance facility is known as an off balance sheet loan.
- In the event of the borrowing business defaulting on their loan commitments, the lender takes full possession of the vehicle.
- The borrower selects the vehicle they wish to purchase and contacts a lender, such as Jade Car Loans, to arrange the finance. In arranging finance, after consultation with their accountant, if the borrower has chosen leasing as their preferred finance facility, a quote is sought for leasing.
- With leasing, the lender actually purchases the vehicle according to the finance agreement.
- The borrower, however, has full use of the vehicle once the finance and purchase process is finalised and is responsible for the ongoing costs associated with operating the vehicle.
- As the vehicle is purchased by the lender, the asset is entered on the balance sheet of the lender not the borrower. This is considered in the industry as improving the balance sheet for the borrowing business. A feature which may be considered favourable by many businesses.
- As the business does not have the asset on their balance sheet, they are not in a position to take advantage of investment incentive schemes and measures which involve accelerated or enhanced depreciation. Such current measures include the IAWO and BBI (Business Backed Investment).
- If businesses do see an advantage in these measures, they would need to purchase their vehicles under a Chattel Mortgage finance facility.
- While the lender holds title and ownership of the vehicle, leasing does follow a fairly standard loan structure.
- Our car leasing deals are all negotiated at our cheap interest rates which is fixed for the leasing term. This low interest rate then determines the monthly lease payments.
- Leasing payments are fixed in monthly instalments which are due for payment on a set date each month.
- The leasing term is fixed in negotiation with the lender – your Jade consultant will handle those negotiations on your behalf. Lenders will have individual requirements in regard to leasing terms. The usual lease term is 48 or 60 months.
- There is an option for a residual to be included in the lease deal. This is a percentage of the vehicle purchase price that is deferred for payment at the end of the lease term. It is not included in the monthly leasing instalments.
- The residual is due to be paid when all monthly payments have been finalised. The borrower negotiates the payout with lender in order to take full ownership of the vehicle.
- Lenders will have individual guidelines around the amount of residual based on the vehicle and the borrower profile.
Accounting Requirements and Tax Obligations
- Leasing is suited to businesses that use the accruals method of accounting. For an explanation of the different accounting methods, accruals v cash accounting, refer to the article in our resources library. As with all business vehicle finance, we strongly advise that our clients refer to their financial advisor or accountant to discuss the most appropriate finance facility for their business structure.
- As the lender is purchasing the vehicle in accordance with leasing structure, they pay and claim the GST which is applicable to the purchase.
- The borrowing business is then charged GST on the monthly lease instalments. They can claim this back on the relevant BAS return. GST is not applied to the interest portion of the repayment.
- The monthly lease instalments are viewed as an operating expense for the borrower and as such is a tax deduction.
- Many different types of businesses may be suited to using leasing to purchase their vehicles. These include companies, SMEs sole traders, partnerships, large corporations and ABN-holders.
- If you have been approved for a low docs or no docs car loan, leasing may be selected as your preferred finance type, subject to the individual requirements of the lender.
- Pre-approved leasing is available through Jade Car Loans.
- The full range of business vehicles can usually be acquired with leasing.
Sourcing a Great Vehicle Leasing Deal
A cost-effective vehicle leasing deal that works with your business cash flow and towards achieving your finance objectives starts with getting the cheapest interest rate loan. Jade Car Loans specialises in all forms of business vehicle finance and is renowned for our better interest rate policy.
To source a leasing quote for your purchase simply make contact with us and one of our consultants will assist you. We work with a large number of banks and non-bank lenders that offer car leasing.
We’ll handle not only the quote and sourcing the lease, but negotiate hard on your behalf to achieve the lowest interest rates and most favourable terms and repayment levels. .
For a leasing quote on your next vehicle purchase, contact Jade Car Loans 1300 000 003.
DISCLAIMER: DATA, DETAILS AND INFORMATION IN REGARD TO POLICIES, GOVERNMENT PROGRAMS, PROPOSALS AND GOODS AND SERVICE ARE PRESENTED IN THIS ARTICLE FOR GENERAL INFORMATION PURPOSES ONLY. THIS INFORMATION IS, UNDER NO CIRCUMSTANCES, INTENDED AS THE SOLE SOURCE FOR MAKING FINANCIAL DECISIONS OR IS IT INTENDED AS FINANCIAL ADVICE. INDIVIDUALS SHOULD SEEK INDEPENDENT ADVICE IN REGARD TO THEIR PERSONAL FINANCIAL SITUATION. ALL INFORMATION HAS BEEN OBTAINED FROM REPUTABLE SOURCES AND IS PRESENTED AS GENERAL INFORMATION AND INTEREST. NO LIABILITY IS ACCEPTED FOR ERRORS OR MISINTERPRETATION OF INFORMATION AND DETAILS OF GOODS ETC AS PRESENTED.