Here at Driveline we like to be upfront about how vehicle leasing works and provide open information so you can better decide if it’s right for you. We’ve put together this article to help shed some light on how leasing works and explain our SmartLease in deeper detail.
Whether your business has leased before or you’re new to the concept and wanting to find out more we’re here to help answer your questions.
Here’s our answers to frequently asked vehicle leasing questions:
Q: Why is Leasing More Affordable than buying on HP?
With a HP you are financing 100% of the value of the vehicle over a fixed period of time.
Leasing is a finance tool that is calculated differently to HP.
With a lease you are financing only the portion of the vehicle that is relevant to the lease term. This is calculated as the vehicle value at the beginning of the lease minus the estimated vehicle value at the end of the lease (residual value). Simply put, the monthly payments are lower because you are financing a smaller amount.
Q: How Is A Lease Accounted For?
A vehicle lease is 100% tax deductible as an expense in the same way as renting your office space.
GST is claimed period by period on the payments made just like any other business expense.
The vehicle is NOT an asset on the company books and does not need to be added to the depreciation schedule.
Q: What is a Residual Value?
A residual value (sometimes called a “balloon payment”) is the estimated value of the vehicle at the end of the lease term e.g. what the vehicle will be worth after 45 months use on a lease.
Exactly how much a vehicle will be worth in the future can be tricky to estimate, there are many varying factors involved and no two vehicles depreciate at the same rate.
Q: How do the Kms traveled effect the lease?
There are many things that effect the resale value of a vehicle, primarily age, make, model and condition. It stands to reason that a popular make and model with low Kms in good condition is going to be worth more.
Perhaps the biggest effect on value comes from the Kms traveled. Why? Because this directly impacts the cars useful life, a car is only as old as the Kms traveled.
That said, we still need to have a conversation about Kms and know how far the vehicle will travel during the lease period. We use this information to help us estimate the residual value correctly.
Q: What happens if I do too many Kms?
Unlike most leases out there, SmartLease has no excess Km charges, you won’t ever be charged a fee for doing too many Kms.
However, if you do significantly more Kms than estimated the vehicle may be worth less at the end of the term.
Q: What Are Refurbishment Costs?
Refurbishment costs or “wear and tear” charges are the extra costs most lease companies charge at the end of the lease to cover valeting, repairs and/or new tyres to get the vehicle ready for resale. These can easily run into thousands of dollars and most clients don’t realise they agreed to these costs as part of the lease agreement.
SmartLease is different, there are NO refurbishment fees, you won’t get a bill from us for these extra costs.
Q: What Do You Mean By Flexible Term?
Most leases lock you in for the duration of the lease e.g. 45 months. SmartLease is different because it doesn’t lock you into a fixed term, technically you can exits the lease at anytime by paying back the cost of the finance similar to how a HP works.
However, because a lease works like a P&I mortgage with the interest portion being paid off first, it usually isn’t financially beneficial to exit a lease until you are around half way through the term.
Q: What If I Have More Questions?
We’re here to make it easy. If you have questions about vehicle leasing talk to our experienced team.
It all starts with getting in contact either by calling 0800 275 374 or filling in the enquiry form below.