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COST COMPARISONS
asset Finance lease -vs- operating lease
An asset finance lease transfers the risk of ownership to the individual without transferring legal ownership.
You choose a residual value within the ATO’s specified range to suit you, and at the end of your lease, you can pay it out, extend your term or enter into a new agreement.
Operating lease on the other hand, is an asset funding option for businesses that don’t want to take on the risk of selling the vehicle at the end of the lease.Because they are both a form of lease, they have one thing in common. That is, the owner of the equipment (the lessor) provides to the user (the lessee) the authority to use the equipment and then returns it at the end of a set period.The differences between the two are clear if we look at who the ownership remains with, who deals with the running and maintenance costs, and whether or not the vehicle can be purchased at the end of the lease term.
Here we will look at both leases and why they are so different:
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asset finance lease
With a finance (asset or capital) lease, the owner buys the vehicle and rents to the user who will have a purchase option at the end of the lease.
The leassee will not face a high upfront cost as when purchasing the vehicle outright:
They will be responsible for all risks, just as if they owned the asset and the vehicle will be shown on the balance sheet. The lessor retains ownership but the lessee has exclusive use in line with the terms of the agreement. Rental payments are made by the user during the lease period, with a balloon payment at the end if preferred. The term of the agreement is normally for the useful lifespan of the asset.At the end of the lease, the customer can pay the balloon payment and keep the vehicle.
They will be responsible for all risks, just as if they owned the asset and the vehicle will be shown on the balance sheet. The lessor retains ownership but the lessee has exclusive use in line with the terms of the agreement. Rental payments are made by the user during the lease period, with a balloon payment at the end if preferred. The term of the agreement is normally for the useful lifespan of the asset.At the end of the lease, the customer can pay the balloon payment and keep the vehicle.
operating lease
Think of an operating lease as a type of rental agreement. Because it has a shorter term, you are able to upgrade to a new vehicle regularly. You may even be able to do this whilst the lease is still in force.
The difference between an operating lease for individual is that the user will not be able to buy the vehicle during the period of the lease, unless is treated as business to business lease.
The user has access to the vehicle for a set time period in return for making regular payments. The customer is able to use the vehicle for the full term of the agreement, paying rental sums each week or monthly. These payments are not equal to the full value of the vehicle, as with a finance lease. Ownership remain with the lessor with the plan being for the vehicle to be returned to them at the end of the term. At the end of the agreement, the vehicle is expected to maintain a residual value, which is forecast at the beginning of the lease. Vehicle maintenance may be built into the payments.
The user has access to the vehicle for a set time period in return for making regular payments. The customer is able to use the vehicle for the full term of the agreement, paying rental sums each week or monthly. These payments are not equal to the full value of the vehicle, as with a finance lease. Ownership remain with the lessor with the plan being for the vehicle to be returned to them at the end of the term. At the end of the agreement, the vehicle is expected to maintain a residual value, which is forecast at the beginning of the lease. Vehicle maintenance may be built into the payments.
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cash buy
VEHICLE VALUE OPERATING COSTS 24 Months
* CASH PRICE BUY $39,990.00 * TRANSFER FEE AND STAMP Duty $ 1,247.00 * INSPECTION AND PREPARATION FEe $ 250.00
* MAINTENANCES $ 1,980.00
* VEHICLE REGISTRATION COSTS $ 2,227.00
* BRAKES REPLACEMENTS $ 2,432.00
* TYRES REPLACEMENTS $ 1,431.00
* MECHANICAL REPAIRS / WARRANTY $ 2,440.00
* COMPREHENSIVE MOTOR INSURANCE $ 4,761.00
* PREMIUM ROADSIDE ASSISTANCE $ 730.00
YOUR ENTIRE VEHICLE COST ($ 57,488.00) YOUR UPFRONT COST $ 39,990.00
+ PROS:
* NO ON-GOING weekly REPAYMENTS
- CONS:
* HUGE OUT OF POCKET CASH BUY
* HIGH RISK IN DEPRECIATION LOSS VALUE
* ON-GOING OUT OF POCKET EXPENSES
* SELF MANAGE WITH RISKS
Lease2own
VEHICLE OPERATING lease COSTS (24 Mts)
* YOUR WEEKLY REPAYMENTS $ 395 PW * TRANSFER FEE AND STAMP DUTY (INCLUDED)
* INSPECTION AND PREPARATION FEE (INCLUDED)
* MAINTENANCES (opt) (included)
* VEHICLE REGISTRATION COSTS (INCLUDED)
* TYRES REPLACEMENTs (opt) (included)
* BRAKES REPLACEMENTS (opt) (INCLUDED) * MECHANICAL WARRANTY (opt) (INCLUDED)
* NO EQUITY GAP INSURANCE (INClUDED) * COMPREHENSIVE MOTOR INSURANCE (inclUDED) * preMIUM ROADSIDE ASSISTANCe (INCLUDED) * 24 MONTHS REPAYMENTS p/cost ($39,000.00) * early BUYOUT fee after 24m ($17,250.00)
YOUR ENTIRE VEHICLE COST ($56,250.00) YOUR UPFRONT COST $ 500.00
+ PROS:
* NO RISK ON DEPRECIATION LOSS
* NO RISK, NO FEE OR COST TO HAND BACK
* NO OUT OF POCKET EXPENSES
* NO NASTY SURPRISES, FIXED REPAYMENTS
* 100% FULL TAX DEDUCTIONS FOR ABN HOLDER
- CONS: (NONE)