How Car Leases Work

in Car

Car leasing is a popular alternative to borrowing to purchase a business car, but it can be a great alternative for individuals too. Whether you want to purchase a car or just rent one for a while, auto leasing could be the answer.

It involves renting a car, similar to leasing an office or house. When leasing a car, the finance company purchases the car of your choice. They then allow you to use the car for the term of the lease in return for a monthly payment.

If the vehicle is used solely for business purposes, the repayments made are completely tax deductible when car leasing. It involves paying the depreciation which becomes your tax deduction. The residual value is the depreciated asset price at the end of the term.


Some of the benefits of car leasing are:

Payments can be a tax deduction for business vehicles
It enables you to change your car every few years
Interest and monthly payments are fixed, so costs are known in advance
Payments are often lower than a car loan
The car is used as security against the lease, so interest rates are often lower than car loans
They offer flexible terms from 2 - 5 years
It can be used for either new or used vehicles.

Types of car leasing

There are three main types of car loans

operating leases,
finance leases and
novated leases.

The main difference between operating and finance leases is at the end of the car leasing term. With an operating lease, the lender retains ownership of the car, whereas with finance leasing, you are responsible for the residual or balloon payment and you assume ownership. Options at the end of a finance lease are; pay out the balloon payment and keep the car, trade in the vehicle, or refinance the balloon payment with another lease or loan.

A fully maintained car lease is a finance lease that includes running costs of the car such as services, fuel, tyres etc. This type of car leasing is perfect if you need to have fixed costs each month.

Novated leasing works quite differently to operating and finance leasing. If you are an employee interested in leasing a car, you should consider novated leasing if you wish to salary package a car.

Who does car leasing suit?

It suits anyone who wants the latest car or whose business requires a car that is always new. It is possible for personal, business or mixed use cars, but car leasing is particularly useful for financing cars used solely for business purposes. Because payments are often lower than car loan repayments, it is an attractive to anyone struggling to afford a car loan.

Applying for a car lease

360 Financial Services can help you choose the right option for you. For more information on car leasing, please contact 360 Financial Services or apply for a car lease online.

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Richard Burgess has 1 articles online

360 Financial Services provides a complete range of finance products from Australia's major lenders and specialist financiers and at rates that beat the banks. 360 Financial Services can also source a car according to customer requirements using their free car-finder service. They also offer a free credit check service. For more information visit or direct at car leasing

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How Car Leases Work

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This article was published on 2010/04/03