Commercial Hire Purchase
Commercial Hire Purchase is a finance product available
to businesses and individuals where the financier agrees
to purchase the car / asset and then hire it back to them
over a set period of time. Contracts are usually
structured so that the regular monthly payments are set
to payout the full amount by the end of the term. The business
or individual has use of the vehicle during this time, however
ownership remains with the financier until the end of the
term, at which time it is transferred. Flexibility in structuring
the contract means that the total purchase price may be
financed, a deposit or trade-in used or a final lump sum
balloon payment option given.
Benefits of Commercial Hire Purchase include:
- Fixed repayments
- Fixed interest rates
- Easily structured to suit budget
- Minimal capital outlay
- No GST on repayments
- Deposit may be used to reduce amount borrowed
Finance Lease
A finance lease is a straightforward option whereby the
financier purchases the equipment or car required and then
leases it to you (the lessee). This provides immediate use
of the asset with little or no capital outlay. Finance leases
are available to businesses or individuals where the car
/ asset is for business purposes.
The lessee is responsible for regular monthly rental payments,
which are fixed for the entire term of the agreement. The
lessee is also responsible for the running costs and residual
risk of the car / asset. At the end of the lease term the
lessee is normally given the option to refinance, return,
sell or purchase the asset for the residual value.
Benefits of a finance lease:
- Rentals/payments are generally tax deductible
- Lease payment is made from pre-tax dollars
- Little or no initial capital outlay
- Budgeting easier as costs are known in advance
- Fixed interest rate
- Lower interest rate as lease is secured against the car
Novated Lease
Novated leasing has become an increasingly popular form
of car financing and is central to salary packaging arrangements
between an employee and an employer. Under such an arrangement
an employee agrees to forego a portion of their salary or
wages in exchange for vehicle benefits to that amount. The
employee leases the car directly from the financier and
has the right to take the car with them should they change
jobs. The obligation to meet the repayments under the finance
lease lies with the employer, via a Novated Deed through
the employees salary packaging.
A Fully Maintained Novated Lease exists where, under agreement,
all operating costs of the vehicle are covered by the lessee.
This includes servicing, registration, tires, insurance
etc.
Benefits of a Novated Lease to the employee include:
- Option to purchase the car at the end of the lease
- Allows the employee to salary package
- Greater choice of vehicles
- Financing may be paid with pre-tax income
- Employee retains any equity built up in the vehicle
- car may be leased for entirely private use
Benefits of a Novated Lease to the employer include:
- Simple and cost-effective way to add value to renumeration
packages
- Higher borrowing ratio
- The responsibility for the car passes to the employee
should the employee leave
- Reduced administration costs
Operating Lease
An Operating Lease is a rental agreement where the financier
purchases the vehicle and rents it to the customer for an
agreed payments over a fixed term. The financier retains
ownership of the car. The risks associated with ownership
are therefore avoided and the future residual asset liability
remains with the leasing company.
Ownership does not pass to the customer at the end of the
term, however they may choose to purchase the car at
this stage, continue to rent or hand back the car (and
perhaps upgrade).
A major advantage of Operating Leases for businesses is
that they are not listed on the balance sheet, meaning the
business' debt to equity ratios are not adversely affected.
Advantages of an Operating Lease include:
- Finance cost is known for a fixed period of time
- Risks of ownership and residual asset liability are avoided
- Lease rentals are tax deductible
Chattel Mortgage
A Chattel Mortgage is a fixed loan where the financier
advances funds to the customer who takes ownership at the
time of purchase. The financier holds a mortgage over the
car which is used as security for the loan.
Flexibility is an advantage of a Chattel Mortgage wherein
the full purchase price of the car may be financed or an
up front deposit or trade-in may be used. A residual payment
may also be placed at the end of the term.
Advantages of a Chattel Mortgage include:
- Minimal capital outlay
- Flexible contract terms
- Fixed repayments may be tailored to a budget
- Repayments exempt from GST
- Depreciation and interest charged are tax deductible
- Lower interest rates as finance is secured against the
car
