1. Purchase for cash.
2. Operating lease
3. Finance lease
4. Residual lease
5. SSA (Specific Security Agreement) - previously known as HP
The question is - which one is the right method for you?
That's where we can help. Once we know your specific situation, private or business, one or multiple vehicle fleet, type of vehicle requirement to do the job, image you wish to portray, and cash-flow objectives, we can point you in the right direction. As an independent finance advisor, we consider it our job to tailor a unique vehicle solution/funding package to suit your needs The following outlines a general overview of the differences between finance products, but there are traps' for the unwary, so call or email Colin so we can ascertain the best solution for you.
1. Cash
The question to ask is this: How much more productive would it be to invest cash to produce a return than tying up valuable investment capital in a depreciating item? As a general rule-of-thumb, a motor vehicle depreciates at a rate of 50% every 3 to 4 years. It is a good idea to apply the accountants rule-of-thumb: Buy what appreciates, lease what depreciates'
2. Operating Lease
This is the traditional form of leasing, normally written over a 36 - 45 month term with the requirement to stipulate anticipated mileage at the commencement and with no right of ownership at the end of lease term. Payments are fully tax deductible. Residual value risk lies with the lease company (Lessor).
Features:
Lease terms can range from 12 to 45 months depending on vehicle and usage
Lease payments are payable monthly in advance
Additional lease payments can be paid in advance to reduce normal monthly rental (at the discretion of the lease company)
No asset recorded on Balance Sheet (improves gearing ratio)
GST is claimed on each monthly rental payment
Fixed term contract (Lessee responsible for all/any termination fees if wanting to exit lease early)
Lease company claims any applicable fleet discount (which is used to calculate rentals)
Maintenance & insurance costs are lessee's care (Full maintenance costs can be included in the monthly rental)
Anticipated mileage must be stipulated at start of lease in order to calculate the likely value of the vehicle at the end of the lease.
Excess mileage attracts penalty charges
Cost of repair for damage to the vehicle returned is chargeable to the lessee
Rentals fully tax deductible as a business operating expense (refer to your accountant for advice on personal usage and fringe benefit deductions.)
Vehicle must be returned to the lease company at the end of lease (no right of ownership)
Ownership remains with lease company
3. Finance Lease
Normally written over a 36 to 60 month term and sometimes known as a lease to own' or lease to buy'. You (lessee) have the right of possession and the lease company retains ownership until the end of the lease. No need to stipulate mileage, and no penalty for excess mileage. Similar to an SSA (HP) but with the deposit paid at the end.
Features:
Negotiated residual value dependant on usage and estimated mileage
Lease payments are monthly in advance
Additional advance lease payment can be made via use of equity in your trade-in or cash, in order to reduce normal monthly lease payments
Asset off-balance sheet
GST claimed on principal component of each monthly payment (and advance rental)
Able to settle contract early if desired (No penalty interest)
Any fleet discounts by negotiation
Cost of insurances including mechanical breakdown insurance, payment protection insurance, and guaranteed asset protection can be added into monthly lease payments
Available on used vehicles up to 5 years of age. Or, you can free up working capital by re-leasing equity tied up in owned company vehicles.
Maintenance and insurance are lessees responsibility
GST registered business operators may claim: GST component of monthly rentals, interest and depreciation (see your accountant)
At the end of the lease you can assume ownership for payment of the agreed residual value
4. Residual Lease
Normally written over a 36 to 45 month term: No need to stipulate mileage, and no penalty for excess mileage: Residual risk lies with the lessee with an option to make an offer to acquire the vehicle from the lease company at the end of the term
Features:
Negotiated residual value dependant on usage and estimated mileage
Lease payments are monthly in advance
Additional advance lease payment can be made via use of equity in your trade-in or cash, in order to reduce normal monthly lease payments
Asset off-balance sheet
GST claimed on principal component of each monthly payment (and advance rental)
Able to settle contract early if desired (No penalty interest)
Lease company claims any applicable fleet discount (which is used to calculate rentals)
Cost of insurances including mechanical breakdown insurance, payment protection insurance, and guaranteed asset protection can be added into monthly lease payments
Available on used vehicles up to 5 years of age. Or, you can free up working capital by re-leasing equity tied up in owned company vehicles.
Maintenance & insurance costs are lessee's responsibility
More flexible than an operating lease
Rentals up to 100% tax deductible as a business operating expense - (regarded as an operating lease for tax purposes as long as there is no provision for the lessee or an associate to purchase the asset at substantially less than market value)
The Lessee may discuss options to acquire the vehicle with the lease company after maturity of the lease
Options at end of term (or earlier if required):
a. Settle residual. You may offer to acquire vehicle for residual value
b. Offer to acquire vehicle and refinance residual for a further term
d. Return the asset to the lease company to be sold, and any profit (or loss) on disposal is returned to (or paid by) the lessee.
5. SSA (Specific Security Agreement)
A Specific Security Agreement (previously known as Hire Purchase) is an effective way for private individuals (and companies) to finance a new or used vehicle. The terms can be varied to suit your individual requirements, which may be particularly useful if your income is variable or seasonal. That means there are no surprises - (unlike bank finance secured over property) you simply pay the agreed amount every month for the term of the contract and the vehicle is yours.
Typically the term varies between 6 - 60 months
The monthly payments are based on a fixed interest rate over an agreed term meaning that interest rates will not change during the term of the contract
The vehicle is shown as an asset in the balance sheet
Monthly payments to suit your budget. Flexibility to negotiate initial deposit, term and structured or balloon payments
If the vehicle is fully utilized for business purposes, GST, interest and depreciation can be claimed as per current NZ Tax Legislation
You gain immediate use and ownership of the vehicle
Normal finance company lending criteria apply.
Download a finance application:
Contact us
