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How To Lease A Car

Name: How To Lease A Car
Creator: Savvy
Published: 2021-04-15T15:16:35+09:30

Find out how to lease a car and discover the best possible interest rates and finance structures via Savvy.

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Written by , updated on July 4th, 2023

Your ultimate guide on how to lease a car

Versatile commercial finance

Car leasing is one of the most flexible ways to access a car for businesses, and there are a couple of different options to choose from, depending on what you need to achieve. Whether you want to upgrade your vehicle every couple of years and outsource administration, or if you’d rather build equity with each payment you make, Savvy can help you find the ideal solution. All forms of commercial car finance have slightly different structures and benefits, so choosing the right one is important, because getting that right can amount to significant savings.

Reach out to more vehicle finance lenders

Savvy assists many Australian companies and sole traders each year when they’re looking to get the most competitive deal for car finance. The difference we make is simple – we deal with an extensive panel of specialist commercial finance providers to bring all the best products and offers together in one place. Our expert commercial finance consultants will quickly identify the options that best match your targets and aims; then, they’ll help you navigate the process of leasing a car with as much convenience and as little disruption to your business as possible.

What’s the difference between a finance lease and an operating lease?

Thousands of Australian businesses use operating leases to run cars for anything up to five years. These leases give you the option to outsource vehicle admin, which can be extremely beneficial whether you operate a fleet or you’re a sole trader.

Operating lease

Operating leases allow you to include associated costs like registration and insurance, vehicle servicing and maintenance, even tyres and repairs in your regular lease payments. Businesses can claim lease and running costs as a tax deduction. If you use the vehicle for personal use some of the time, you can still claim deductions as long as you subtract that portion. With an operating lease, there’s no obligation to buy when the term ends, but you’re free to make the lender an offer if you’d like to own the car. 

Finance lease

A finance lease works a bit like an operating lease, but end-of-term options are slightly different. When the agreement ends, you have an obligation to buy the car – although you’re also free to sell it and start a new lease. If neither of those two options suits, you can refinance the residual amount, essentially prolonging the lease and continuing to use the vehicle. Terms for a finance lease also run out to five years. However, unlike an operating lease, you build equity in the vehicle with each repayment. 

With both a finance lease and an operating lease, part or all of the payments are tax-deductible – depending on how often you use the car for business. The total financing cost for both solutions also gets based on the ex-GST price of a vehicle.

How do car lease residuals work?

Residuals get set in different ways for car loans and leases, and they exist for different reasons, but you always have the same payment options when they arise. You can either refinance a residual, which effectively extends your finance term – whether that’s a loan or a lease – or you can pay the residual, and the finance ends, making you the owner of the car.   

Finance lease residuals are set according to the ATO – and they can’t be adjusted like with a chattel mortgage. That’s because the amount the car is worth and how much you need to pay to take ownership at the end of the term needs to match – or you could be gaining a tax advantage.

Operating lease residuals get set in exactly the same way as a finance lease, but there’s a different logic behind it. You don’t necessarily have to buy the vehicle when you’re using an operating lease, so it’s more about working out how much the lender needs to charge you during the term. In this case, a residual serves to make sure you’re paying for the depreciation of the car during the course of your agreement and that the lender can get the rest of the new car value back when he disposes of the vehicle.

Years	ATO Minimum Residual %
One-year Lease	65.63%
Two-year Lease	56.25%
Three-year Lease	46.88%
Four-year Lease	37.5%
Five-year Lease	28.13%

Chattel mortgage residuals are different again. Borrowers get a certain amount of leeway in terms of adjusting the residual and only paying down what they prefer to pay during the agreement – with the remainder becoming dure when the term ends. That works great for many businesses because they can match repayments to cash flow forecasts and other financial commitments. Most lenders set residual parameters but they generally assess each application on merit, and chattel mortgage versions are the most flexible option for managing regular lease costs.

Answers to your common car leasing questions

Can I lease a used car? 

Some specialist lenders let you lease used vehicles. Remember, though, that the older a car is, the higher the interest rate you’re likely to pay – because age presents more risk for lenders.

Do I need to use a leased car for business all of the time? 

When you’re leasing a car, you’ll be entering into a commercial finance agreement. That means you’ll need to use the vehicle for business at least half the time to qualify.

Is it worth getting a fully maintained car lease? 

The most significant advantage here is that lease lenders usually buy thousands of cars every year, and that means they get some fantastic prices from dealerships and car wholesalers. It also means they negotiate servicing, maintenance, and fuel costs in a similar way – so fully maintained leases can save you a lot of money.

How do interest rates for car leasing compare? 

Commercial car leases are basically a form of asset finance. That means the type of asset you access and its age alter the interest rate you pay – because different machines, items, and vehicles pose more risk for lenders. The good news is that cars are one of the lowest risk assets to finance. If you’re leasing a new car, that’s even better.

Why should I use a car finance broker? 

Apart from the obvious advantage of getting access to more lenders, products, and offers, Savvy’s expert car finance consultants are a big help during the process because they know the marketplace. That means you need to know and worry less about how to lease a car. That means applications generally go quicker, and you get more time to run your business when you use a finance broker.