|
Finance Lease |
Loan |
Hire Purchase |
| Terms |
Lease term is up to you but would typically be 3 to 5 years |
Loan contracts are usually signed for 3 to 5 years |
Loan contracts are usually signed for 3 to 5 years, but again it is up to you |
| Type of vehicle |
Vehicle choice is up to you and your budget! |
You own the vehicle once you have made your final repayment (including a balloon payment if applicable, however typically there is no balloon payment on Loans). |
You own the vehicle once you have made your final repayment (including a balloon payment if applicable). |
| Up-front costs |
Up-front costs usually include the first month's rental, stamp duty and registration fees, although you can sometimes finance the on-road costs. |
Up-front costs usually include a deposit, stamp duty (in some states), and establishment & registration fees. Most of these government fees can be added to the loan. |
Up-front costs usually include a deposit, stamp duty, registration fees and your first loan repayment. Some of these fees can be added to the CHP amount financed. |
| Repayments |
Monthly payments are calculated based on the vehicle's depreciation of pre GST cost price during the lease of the term, interest charges, duties, and other fees. GST is chargeable on the lease rental amount. |
Loan repayments can be monthly or fortnightly, and are based on the total amount of the purchase price inclusive of GST, plus interest charges, duties and other fees. GST is not payable on the loan repayments. |
Monthly loan payments are based on the total amount of the purchase price inclusive of GST, plus interest charges, duties and other fees. GST is not payable on the loan repayments. |
| Balloon/Residual |
A Finance Lease must have a balloon payment which reflects the value of the vehicle at the end of the term. Typical scenarios are:
3 years with 45% residual
4 years with 35% residual
5 years with 25% residual
Balloon variances of up to 5% either way is common |
It is uncommon to have a balloon payment on consumer loans, however the facility is available and applications are welcome. A balloon payment will reduce your regular repayments and assist your budget requirements. But remember, what you don't pay now, you do pay later! |
Unlike Lease, with Hire Purchase you have the option with or without a balloon. The balloon does little to your overall tax claim, and its main benefit is to suit individual budgets and affordability. Typical terms and balloons are similar to that shown in Lease column. |
|
Finance Lease |
Loan |
Hire Purchase |
| Insurance |
Insurance premiums can be higher when the vehicle is finance leased and not owned outright. |
Insurance premiums will be slightly when the vehicle is financed and not owned outright but typically cheaper than premiums based on Lease or CHP. |
Insurance premiums can be higher when the vehicle is financed by CHP and not owned outright. |
| Early termination |
You are responsible for any early termination charges stipulated on the leas contract. Make sure you understand them. |
You are responsible for paying off the loan, there could be costs associated with early repayment of the loan. |
You are responsible for paying off the loan, there could be costs associated with early repayment of the loan. |
| Vehicle return |
With a finance lease it is accepted practice to make an offer for the vehicle at the end of the term. |
You keep the car! On making final payment you own the vehicle. |
You keep the car! On making final payment (including a balloon payment if applicable) you own the vehicle. |
| Future value |
You are responsible for any difference between the residual value and the market value with a finance lease. |
If you decide to sell or trade-in the vehicle at the end of the loan term, the risk of its future value is yours. |
If you decide to sell or trade-in the vehicle at the end of the loan term, the risk of its future value is yours. You also have the option of refinancing the balloon amount over a new term if you choose to keep the car longer. |
| Maintenance |
You are responsible for the maintenance of the vehicle during the lease term. An operating lease may include a maintenance contract which would transfer this responsibility to the lessor. |
You are responsible for the maintenance of the vehicle. |
You are responsible for the maintenance of the vehicle. |
| Kilometers during the term |
An operating lease may impose a limit on the number of kilometers you may travel. However, bear in mind that the higher the kilometers the higher the lease rental. There will most likely be extra charges if the actual kilometers exceed the limit set on the contract when you return the vehicle. With a Finance Lease there are no restrictions, however, high kilometers will affect the market value. |
No limit. The vehicle is yours. Drive it as you please. However, the higher the kilometers, the lower the resale or trade-in value of your vehicle. |
You are responsible for the maintenance of the vehicle.No limit. The vehicle is yours. Drive it as you please. However, the higher the kilometers, the lower the resale or trade-in value of your vehicle. |
|
Finance Lease |
Loan |
Hire Purchase |
| End of term |
At the end of an operating lease you simply return the vehicle. With a Finance Lease you can return the vehicle and pay any difference between the residual value and the market price or make an offer to purchase the vehicle for the residual value. |
At the end of the loan term, the vehicle is yours to keep. |
At the end of the loan term, the vehicle is yours to keep (provided all payments have been made, including a balloon payment if applicable). |
| Tax Benefits |
You claim the monthly repayments as your tax deductible expense based on the percentage of business usage, together with the ongoing running expenses of the vehicle. |
You can claim depreciation of the purchase price of the vehicle plus interest charges as your tax deductible expense based on the percentage of business usage, together with the ongoing running expenses of the vehicle. |
Same as Loan. |
| Claim limit |
Passenger vehicles over the motor vehicle depreciation cost limit (also known as luxury car limit) cannot be claimed as a lease. This cost limit is indexed and adjusted annually. For the 2003/2004 income year the cost limit is $57,009. |
The claimable depreciation is limited by the motor vehicle depreciation cost limit. The purchase price above this limit cannot be claimed. The portion of interest calculated for the amount over the limit also cannot be claimed. |
Same as Loan. |
