Finance lease

What is a finance lease?

A finance lease might suit you if:

• You’re a business, or an individual using a vehicle predominantly for business

• You can’t qualify for a novated lease

• You don’t want to (or can’t afford to) buy your vehicle outright

• You don’t mind having a residual value (a remaining balance to pay at the end of the lease, which is compulsory but you can use it to lower your regular repayments)

• You want to save on GST

If you’re an individual with a finance lease, you might be able to claim the business usage of your vehicle to pay less tax. However, if you’d like to maximise tax savings a novated lease might suit you better (see below).

How a finance lease works

1. A lender purchases a vehicle on your behalf

2. The lender then leases it back to you on a fixed term (terms range from 12 to 60 months)

3. Once the lease is complete and you’ve paid off the residual, the vehicle is yours to keep

Benefits of a finance lease

Although individuals generally can’t claim GST, with a finance lease the lender can claim it on your behalf. This means you’ll only pay the ex-GST price for your car and will have much lower lease repayments. 

And if you’re looking to get a new vehicle on a finance lease, you can also access wholesale pricing through our fleet network. We buy thousands of cars a year, so you can use our buying power to save potentially thousands on your new car purchase. While you can’t benefit from this perk if you’re looking to get a used car, it might be worth considering if a new car is more viable with this saving, taking into account a new car’s full warranty and stronger resale value.

The end of the lease

When all lease payments are made, you have three options:

1. You can upgrade: trade your vehicle, clear the residual (balance remaining) and lease a new vehicle; or

2. You can keep your car: pay the residual to own your vehicle outright. If you can’t afford the residual, you can refinance it on a new loan to pay it down; or

3. You can sell: If you don’t need a car anymore, you can sell your vehicle, pay off the residual and you’re done

If there’s any profit when you sell your vehicle, it’s yours to keep, tax free.

A smart alternative: The novated lease

It’s possible you’re reading about a finance lease because a novated lease isn’t available to you – perhaps your employer doesn’t offer them (we can help if so). But if the term novated lease is new to you, you should definitely look into it before taking the plunge. A novated lease has benefits that any other type of car finance simply can’t match. It could save you several thousand dollars (or more in some cases) because it lets you use pre-tax income to pay for your car and running costs – and you can also save GST on both. You can read more in our article, ‘Is novated leasing right for me?’.