Leasing A Car For Business

Business Car Leasing Explained: Find out everything you need to know about leasing a car for business in Australia.

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, updated on June 29th, 2023       

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Leasing a car for business

How Leasing a Car for Business Works

More and more Australian companies and sole traders are leasing a car for business every year, but it’s also one of the most well-established forms of business vehicle finance – and that’s true for several reasons. When you choose to lease a car for business, you get several options, and picking the right one can save you time, money, and reduce operating problems. Whether you want to own a vehicle or explore business car leasing options where you can upgrade relatively frequently, there’s a finance option out there.

Using a Savvy Commercial Finance Consultant

Savvy’s expert business finance consultants don’t just know commercial leasing products inside-out, they get access to a vast lender panel too. That means when you trust Savvy to source business car leasing offers, you can be safe in the knowledge you’re opening up more choice and competitive interest rates. We partner with more than twenty-five of Australia’s foremost wholesale and niche vehicle lease lenders, so no matter what car you’d like to use, or how you’d like to use it, we can help find the most cost-effective solution.

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Why trust Savvy for business car leasing?

Leasing a Car for Business? You Get More Options With Savvy

Leasing a Car for Business: Finance Leases

A finance lease is a way of owning a business vehicle at the end of the finance term, but not during the agreement. The lender buys the car, and you make payments based on the value of the vehicle minus the residual, which becomes due at the end of the term. When the lease ends, you can choose to pay the residual and take ownership, refinance and extend the term, or sell the vehicle and start another finance arrangement.

  • Earn equity in the car every time you make a payment
  • Opt to own the car, refinance, or dispose of the vehicle when the term ends
  • Fixed payments, based on the car’s value during the term
  • Lease over one to five years

Business Car Leases: Operating Leases

Operating leases are the go-to car lease option for businesses that want to get use of vehicles without owning or taking care of admin. Operating leases are more like a long-term vehicle rental arrangement where the lender arranges servicing, maintenance, registration, and even insurance – although users can choose to include whatever elements they wish in many operating lease agreements.

  • Get fully maintained vehicles and outsource administration for registration, servicing, and maintenance
  • The lender retains disposal and residual value risks
  • End of lease options include returning the vehicle or negotiating a purchase price
  • Terms run from 12 to 60 months

Sale and Leaseback Business Finance

Some specialist lease providers offer sale and leaseback facilities to business customers. That’s basically an operating lease arrangement for cars you already own. If you’d prefer to outsource vehicle admin and release any capital tied up in a car, the lender will buy it and then lease it back to you.

  • Outsource administration for servicing, registration, and maintenance
  • Free up capital
  • Get the benefit of lender-negotiated rates for fuel, servicing, and maintenance
  • Terms run between one and five years

The Benefits of a Novated Car Lease

Novated leases are a three-way finance arrangement made between yourself, your employer, and a lender. Employees use pre-tax earnings to buy a car, which reduces your income tax. You can’t use a novated lease if you’re a sole trader, but the option is available as long as you get paid a salary.

  • Make lease and running cost payments from your earnings, before you pay tax, reducing your taxable income as you buy
  • The lender buys your car and then claims back GST, so you save thousands on the purchase price (equal to around $4,500 on a $50,000 vehicle)
  • You benefit from lender-negotiated running costs like servicing, fuel, tyres, and general maintenance
  • Lease over anything between 12 and 60 months

The Chattel Mortgage Finance Solution

Leasing is just one option open to business users. With a car lease, businesses either don’t own the asset at all or take ownership at the end of the term, but a chattel mortgage means you own the car from the start of the agreement. That has some tax and GST implications:

  • GST charged on the purchase price can be claimed back as soon as you lodge your next Business Activity Statement
  • GST doesn’t apply to monthly repayments
  • You also don’t get charged GST when paying off any residual amount at the end of the term
  • The interest portion of repayments gets classed as a business expense and is tax-deductible
  • You can claim depreciation on the car from day one
  • Terms between two and seven years

With a chattel mortgage, residuals don’t have to be set to ATO guidelines, so borrowers can use the balloon payment to reduce or increase repayment amounts. A chattel mortgage gets secured against the car, so interest rates remain relatively low, and they’re also fixed throughout the term. You can choose to use a trade-in or cash deposit with a chattel mortgage, so it’s a great option if you want to dispose of existing vehicles without the hassle of selling them.

All of Your Business Car Leasing Questions Answered in FAQs

Can I use a novated lease if I’m a sole trader?

Unfortunately, you can’t because they’re exclusively for employees. However, if you run a company and pay yourself a salary, you can access the benefits of novated car leasing.

Are fully maintained car leases worth the extra costs?

Almost always. Lenders usually buy and maintain many vehicles each year, so they negotiate some attractive rates for everything from servicing and insurance to fuel and replacement tyres. Fully maintained leases remove the admin burden from your business and result in cheaper running costs.

What do I need to qualify for a commercial car lease?

Lenders can vary slightly, but this checklist is a useful guide if your business is about to apply for a business car leasing agreement. Remember, Savvy consultants are always here to help you with any aspect of lender requirements or documentation, so if you have a specific need or question, that’s no problem.

  • The lender will check your credit rating
  • Most lenders want to see businesses with at least a couple of years healthy trading behind them
  • You’ll need to supply 24 months of financials, such as profit & loss statements and balance sheets plus tax returns
  • If your company is doing well, but you don’t have your latest tax return or other financials prepared, Savvy partners with several lenders who offer low doc car finance for business
Can I choose my own vehicle and upgrades?

You can choose pretty much any vehicle you need, but any upgrades or customisations need to get carried out before you take delivery. That’s an advantage because extra costs get incorporated into your regular payments, but – in the case of an operating lease – it also means you’ll be returning the vehicle as delivered when the term ends.

What happens when my business car lease is over?

With a novated car lease, you can either pay the residual and own the car, refinance the residual and continue reaping tax and GST savings, or sell the vehicle and get another novated lease. The options for a finance lease are identical to novated leases, but operating leases differ slightly.

What happens at the end of an operating lease is you can choose to buy the vehicle, much like with novated and finance leases – and you can either pay the residual or refinance it in the same way. However, operating leases also give you the option of handing the car back. At that point, you can choose to take out another lease, opt to switch your method of finance completely, or even just walk away and consider your options.

Will the lender perform a credit check?

Every lender performs a credit check when it comes to any type of finance product, and leasing a business car is no different. Depending on the size and type of your business, the lender will check your own and your company’s borrowing history before approving finance. If you’re concerned about past credit issues, you can talk to a Savvy consultant about a range of bad credit vehicle finance options.

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