Car Lease Interest Rates

Car lease interest rates are one way to reduce car finance costs, but they’re not the only way. Save more with Savvy

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, updated on June 30th, 2023       

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Car lease interest rates explained

How to pay less for your car leasing

Interest rates are an important aspect of how much you’ll pay for finance, but they’re not the only component you should consider when you’re comparing different car lease options. Commercial leases come in two primary forms – finance and operating leases, and they have different structures and benefits. Making the right decision is easier when you know exactly how each option works and what affects the interest rate you’ll pay to lease a vehicle. On this page, you’ll learn what influences car lease interest rates and how to compare, save, and discover the ideal finance solutions via Savvy.

Lowest car lease interest rates via Savvy

For most drivers out there, comparing each and every interest rate and lease option on the market isn’t practical. There are hundreds of lenders, from niche finance providers to banks. During the course of an asset finance or lease, even the smallest difference to a rate or a feature can have a significant effect on how cost-effective your finance is – and that can have equally significant cash flow implications. Here at Savvy, we help more Australians find their ideal finance solutions because we partner with more lenders, present them with more options, and save them more time.

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How do I get the best car lease interest rates?

The secret to getting a good interest rate is to look at as many offers, products, and services as you possibly can. While that’s a great idea in theory, it can be more challenging in real life. That’s because finance providers are scattered around the marketplace. Finding finance is easier nowadays than it used to be, but even with a resource like the internet, it’s basically impossible to examine every lender out there and it can take hours and hours, if not several days, to look at a broad selection of lenders, rates, and products on your own.

Most people out there canvas a wide variety of providers when they look for a home loan, for instance. The mortgage broker industry is huge, but that’s also the case when it comes to car finance. Websites like Savvy work in exactly the same way. We partner with dozens of finance providers that offer specialised products in all sorts of areas – and that includes car loans and leases. When you shop for a car lease via Savvy, we look at your specific requirements and situation, then we can quickly use our partnerships to identify the most relevant, cost-effective car lease interest rates – including some offers that you won’t find advertised to the public.

How do I compare car lease interest rates?

The role of a good car finance broker is to look at your finances and what you’d like to achieve, then find you the cheapest, most suitable solutions from an extensive panel of automotive finance providers. That’s basically what Savvy car finance consultants do when you get in touch.

Lenders make money from a car lease using an interest rate that’s set according to how they perceive the risks of lending to your business. They also look at your borrowing history via your credit report when they decide what interest rate to charge. However, different lenders apply various fees too:

  • Lenders use monthly or annual account fees, for providing the finance facility
  • Some providers charge set-up fees, for arranging the lease.
  • If you need to end the agreement early different lease providers apply various break fees
 

It can be challenging to consider the combination of fees and rates when you’re attempting to compare many different finance offers and lenders, but you can use a comparison rate to solve that problem. Comparison rates work by incorporating all the additional fees and charges associated with a lease into an overall rate that gets displayed like a traditional interest rate alongside each offer.

It’s worth remembering when you consider various car lease interest rates that tax benefits usually go a long way to compensate for the interest rate and fees:

  • You can claim entire lease payments as an operating expense, making them tax-deductible
  • The total cost of your lease gets based on the ex-GST value of your car
 

Just like when you’re buying a house, a car is a major purchase, and using a vehicle finance broker takes the effort, hassle, and the time out of comparing the best car lease interest rates out there. You get to shop from a broader section of the market, so you’ll find more rates, offers, and solutions, and what’s more, using a broker like Savvy costs you absolutely nothing – we don’t charge you a cent.

How does the car lease process work?

Leasing a car is fast, convenient, and with the help of a Savvy car finance consultant, you can be driving the best deal around in no time. You get to drive the car you want, and you can choose the specific model and any required upgrades or options. Leases don’t work like loans, so the lender will buy the car and continue to own it during the finance term while you make monthly, fixed-interest payments.

Once we’ve identified your best option, applying for a car lease is easy. You can fill out forms, sign agreements, and upload any required documentation online. When your finance gets approved, the lender will arrange to buy the vehicle. You’ll benefit from a GST-free purchase, and most lenders wield significant buying power within the automotive industry because they purchase thousands of cars every year. Once your chosen car is ordered, we’ll advise you about the delivery date. Savvy’s car finance consultants will also liaise with lenders for you, and they’ll stick with the task until everything is arranged and you’re sitting behind the wheel of your vehicle.

How does the vehicle affect car lease interest rates?

Many different factors influence the interest rate you pay for car finance. Some you can’t control, but there are ways to make sure you’re getting the best deal possible on a car lease. First, when you use commercial asset finance of any kind, the type of asset you buy or lease affects the cost of borrowing. The good news is that vehicles are one of the best items to finance when it comes to interest rates.

Type/Age of Asset Vehicles Machinery Electronics
Brand-new
4%
5%
6%
Under 2 years
5%
6%
7%
Under 5 years
6%
7%
8%
More than 5 years
8%+
9%+
10%+

Secondly, with a vehicle lease, used cars cost more to finance because older vehicles are viewed by the lender as posing more risk. When it comes to commercial finance interest rates, leasing a new car is one of the most cost-effective options out there.

How do different car leases work?

Finance Leases come with terms between one and five years. Residuals get set by the ATO according to the length of the lease. When the term ends, you own the vehicle unless you refinance the residual and extend the lease or sell the car and source a new vehicle and finance.    

An operating Lease works similarly to a long-term rental agreement. Terms run from one to five years. Operating leases offer the additional option of having a fully maintained solution, meaning you pass over the vehicle administration to the lease provider. That can cover everything from maintenance to fuel and servicing and insurance. The costs get bundled with your regular lease payments. With an operating lease, interest rates can be slightly higher because the lender bears both the ownership and residual risks during the term.

Both operating leases and finance leases have favourable tax implications. The whole of lease payments are tax-deductible (The principal portion and the interest), based on how much business use the car gets. 

What are my car lease alternatives?

Chattel mortgages are an alternative to car leases, and they’re also a popular commercial vehicle finance option. Tax and GST work differently with a chattel mortgage, and they’re a great example of why car lease interest rates are not the only thing you should consider.

Finance Type: Finance Lease Chattel Mortgage
Amount:
$45,455
$50,000
Residual:
28% ($12,727)
40% ($20,000)
Term:
5 Years
7 Years
Interest rate:
4.5%
5.5%
Monthly fee:
$30
$0
Monthly payments:
$551
$549
Total interest:
$3,282
$3,884
Finance cost:
$33,081
$36,892
GST back at BAS:
$0
$4,545
Net finance cost:
$41,272
$41,570

The table above is a good illustration of how fees can add up during a lease term and how tax and GST implications should also be a factor in your decision. Leases have a lower base interest rate than a chattel mortgage, meaning the starting point is lower – before other factors like your history and business finances get taken into account. With a lease, often, any interest rate benefit gets cancelled out by a   monthly account fee. You also can’t adjust the residual like you can with a chattel mortgage, so it’s impossible to adjust monthly costs based on cash flow. Chattel mortgage terms are longer, at a maximum of seven years, which also helps as an option to manage regular repayments. In the table, the total costs for both the loan and the lease are similar; you just get longer to pay it and hence lower repayments with the chattel mortgage option. With a chattel mortgage, you can also claim 100% of the purchase price GST back as soon as you file a BAS, which equates to several thousand dollars when you’re financing a car. The main difference between a lease and a chattel mortgage is that you never own the car with a lease during the term. With the chattel mortgage, you own the vehicle from the start, so you claim depreciation. Interest on repayments is also tax-deductible.

Why choose Savvy for your car leasing?

Common questions on car lease interest rates

What documents do I require to apply for commercial car finance?

You’ll need to supply ID in the form of a driving licence or passport. Applicants must be residents or citizens of Australia and over eighteen, and you’ll need to have a valid, active ABN. Lenders will ask to see profit and loss accounts, tax returns, and you may get asked for cash flow forecasts.

Will my business finances affect car lease interest rates?

Your business’s current financial health, plus factors like how much existing borrowing your company has, will also significantly affect the interest rate you pay for equipment finance. A lender will check your accounts to ascertain how much you can borrow and how much that will cost. 

I’ve not traded for long. Can I still use a lease?

How long your business has been established can also influence lenders. That extends to both their qualification decisions and how much interest they charge for borrowing. All lenders have minimum requirements for finance applications, and if your business is new, that’s going to affect whether or not you can access a car lease and how much it will cost when you do.

How does my credit history affect interest rates?

Your credit rating impacts how much you pay for vehicle finance. Just like with the age and type of asset, car lease interest rates get based primarily on the lender’s perceived risk, so your borrowing history is a big influence on the total cost charged by the lease provider. Even if your borrowing record is clean, it’s still a good idea to check if there are any mistakes on your report because they do happen. You can check your credit report once a year for free. If you suspect you have a genuine issue or you’ve had trouble getting car finance before, talk to one of our consultants about tailored bad credit car finance options.

Is my business turnover a factor?

Lenders also look at businesses with higher turnover more favourably. The more business you are doing, the lower the lease provider’s perceived risk will be. While higher turnover is great, it’s also essential to ensure you’re making enough money to repay car finance, so lenders also check things like your profit and loss account, and they’ll want to see an up-to-date tax return too.

Are you asset-backed?

Some businesses need finance when they’re still waiting to file their latest return or when their accounts are not up to date. If that sounds like you, speak to one of our expert car finance consultants about specialist low doc car finance. Lenders may request that you be asset-backed or have equity in a property. Likely, this will just influence the car lease interest rate you pay.

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