Can I Lease a Car for a Year

Vehicle Leasing

Car, ute or van? Understand the revenue enhancement and business organization benefits with our guide to vehicle leasing

Updated three March 2021

What is vehicle leasing?

Vehicle leasing is a contract which allows a business to obtain a vehicle for a fixed period. The leasing company owns the vehicle and charges the business concern an agreed amount per month to use the vehicle. Commonly, leases concluding for 12 to 48 months, merely in some cases can be longer.

Once the lease ends, the concern returns the vehicle. Leases are taxation-deductible.

Importantly at that place are two types of vehicle leases – operating leases and finance leases. This guide focuses primarily on operating leases.

Understanding Operating Leases

• Operating leases represent the traditional fixed-term vehicle lease where the ownership remains with the leasing company.
• For example, a typical operating lease may be advertised every bit '36 months, 90,000km mileage and total warranty'. This means yous'll lease the car for three years and be contracted to bulldoze less than 90,000 km.
• Operating leases have several advantages:

1. The cost is 100% tax-deductible as an operating expense
2. In well-nigh cases, the leasing company has the responsibility of maintaining the vehicle
3. The contract appears 'off-remainder sheet', meaning the remaining charter price won't announced as a liability on your accounts.
4. You lot don't need to borrow or invest a large corporeality of working capital to buy a vehicle outright, meaning you can use the free money on something productive.
5. Charter payments are stock-still and easy to budget for.

But in that location are some disadvantages:

1. You lot must keep the vehicle in very adept status to avert a 'refurbishment charge' when you lot return it at the end of the lease.
2. Yous're locked into a fixed term and fixed km allowance, and then if your business organisation needs a change you'll need to re-negotiate the contract.
3. In about cases, there are loftier termination fees if you wish to abolish before the end of the lease.
4. Be aware that maintenance packages volition most likely exclude tyre replacement. Replacing four tyres can be plush, so it's important to inquire what tyre parcel is available (and negotiate a better one if necessary).​ A ready of tyres generally lasts around 40,000 km, and so if yous have a 90,000 km mileage lease, this could cost an extra $ii,000+ in tyre costs.
   

Agreement Finance Leases

• A finance lease is similar to an operating lease with one key deviation – at the end of the charter, the business leasing the vehicle owns it outright.
• You don't need to borrow or invest a large corporeality of working capital to buy a vehicle outright, significant you tin can use the complimentary money on something productive.
• The monthly payments tin can piece of work out to be cheaper than car finance
• The GST on the lease element tin be claimed back
• Depreciation can also be expensed

Just there are some disadvantages:

1. The cost is non 100% tax-deductible, unlike an operating loss.
2. The vehicle is treated as an asset on your remainder canvass, and the unpaid amount appears as a liability.
3. As the vehicle depreciates, your nugget is worth less each year. Yous can expense the depreciation cost, just it's still a cash loss.

What are the benefits of vehicle leasing?

​Cars on New Zealand roadsdepreciate faster than any other country in the world, and car finance isn't cheap either. Vehicle leasing has go increasingly pop as drivers look to save on vehicle costs.

Different buying a car upfront, or paying for it on finance at high-interest rates, leasing is effectively the same as renting a motorcar for anywhere between 12 and 48 months. Vehicle leases are like to renting a habitation – yous pay a eolith, agree on a term and to make regular monthly payments, and you hand over the keys when the lease term ends.

Leasing companies offering new and used cars, nigh of which include encompass for repairs and maintenance. New vehicle leases give you the ability to drive a new car every few years without the hassle of stumping upwardly for repair costs should something get wrong. Yous also don't demand to muck around with selling you're the motorcar when you want to upgrade, nor are you stuck paying monthly costs until it's paid off like you are with automobile finance.

New leased cars come with a manufacturer's warranty. Used leased cars oft offer a flow of repairs encompass. This makes managing cash menstruum easier, especially if your existing vehicle is prone to needing repairs.

​

What practice I need to be aware of when leasing a vehicle?

1. You'll never own the vehicle
You lot're essentially renting the vehicle for an agreed menstruum. For case, if you lease 2022 Mazda three Express for $500/month for 36 months, your total cost will be $18,000. A new Mazda three Limited retails for around $fifty,000. It'due south upwards to you to decide if the ongoing cost provides good value for coin.

2. Yous'll need to pay for comprehensive insurance
Insurance costs are separate from your monthly lease cost. Our machine insurance comparison explains how to save money.

​iii. Be aware of the condition the machine needs to be returned in
To avoid service fees, y'all'll need to be aware of the condition the leading company expects your to render the vehicle in. While a few marks are by and large fine, it will need to be in a condition for easy re-sale.

four. Understand the fiscal obligations
Beyond the monthly lease payments, yous'll need to be aware of tardily fees, early render fees and damage penalties, among others.

5. Be aware that mileage will be limited
All leases have a mileage limit - it doesn't apply per year but to the total term of the lease. If yous return a motorcar with 80,000 km added fifty-fifty though you agreed a 50,000 km lease, you will pay a penalty charge. Empathize your mileage needs and don't under-judge them when leasing a vehicle.

What types of vehicles can be leased?

At that place is a massive range on offering, although understandably the best selection will be institute in Auckland, Wellington and Christchurch. Dozens of specialist companies offer leases for automobile, utes and vans.

Is vehicle leasing just for business organisation owners and employees, or can I charter privately?

Vehicle leasing is tax-effective for companies who will claim the GST and deduct the monthly costs as a business organisation expense and therefore lowering their company tax bill. For example, a plumber leasing a van will deduct the lease costs in the same way as their petrol costs, phone bill and marketing expenses.

For individuals considering a vehicle lease, at that place are few options to get in 'tax-effective'. This means you won't be able to deduct the GST (15%), nor the monthly cost from your income. Merely at that place are advantages for individuals leasing:

You tin can drive a new car without losing money on depreciation.

If you don't have the money upfront for a new machine, leasing allows you to budget a monthly payment with no other costs (similar car finance).You can as well avoid maintenance costs and repairs past leasing when it includes maintenance.

​

Should I purchase a vehicle outright, use finance or charter?

The respond is

it depends on your personal circumstances

. Leasing tin can be very cost-effective and free up greenbacks. MoneyHub is often asked by users whether they should 'charter or buy?' If you make up one's mind to lease, there are many advantages:

1. Firstly, you won't need to allocate precious capital to a heavily depreciating asset. The money y'all salvage can be directed to productive assets that boost acquirement.
   
2. Secondly, leasing gives cashflow certainty. You lot'll pay a stock-still amount which for all businesses is revenue enhancement-deductible.
   
3. Thirdly, many lease deals offer maintenance packages to protect you lot from repair costs.

But, if you exercise lease, at that place are restrictions on kilometres. And if the warranty expires during the charter, you'll be liable to pay any repair costs. And recall, later your charter ends, you lot won't own the car or accept any right to continue to use information technology.

Many people favour leasing vehicles because it solves the 'what should I practise with my old car?' question. Leasing means y'all just return the car, rather than trade it in. You'll save time deciding how much is a 'reasonable' cost, what to buy next and arranging financing if you don't accept all the money. It's arguable that leasing is the best way to accommodate a car, given the costless-upward of funds it offers likewise as the chance-gratuitous commitment.

The Process of Leasing a Vehicle

Leasing a automobile is a straightforward process, merely you lot'll need to know the steps forth the way to ensure you get the near suitable deal. We explicate the six standard steps for vehicle leasing beneath.

Step One: Work out what y'all can afford per month The best way to do this is to look at what y'all pay now on car finance costs, and if information technology'south affordable, then allocating something similar is a adept idea. If you lot own your vehicle outright, you'll need to talk to your accountant or finance manager to get an idea. If your company is profitable, operating lease costs are 100% taxation-deductible. We believe: At that place is no magic formula for vehicle lease affordability  – a partner of a law firm may earn $150,000 only pay $700/month for a BMW lease, whereas a plumber may earn $250,000 and pay $300/month for his van lease. It all comes down to what yous want and what your business can afford.

Step Two: Search for vehicle leasing companies There are many options all over New Zealand. A simple Google search and request business associates is a good start.​

Step Iii: Sympathise the pricing and obligations Once you notice a vehicle and brand an enquiry, the visitor will desire to know more than about your business organisation. Of particular interest is the kilometres you expect to drive and how long you demand the vehicle. The company will run a credit check (as an operating lease is a credit contract, much like a mobile phone plan or hire buy is). You'll be quoted a monthly cost, the permitted kilometre limit, break fees and any fees for untidy render, insurance and excess mileage. If y'all're uncertain most anything, this is the fourth dimension to ask.

Step Four: Signing the contract Your contract volition specify the term and all fees associated with the lease. You'll need to adjust comprehensive insurance before you lot sign the paperwork. One time this is complete, you tin collect your vehicle.

Footstep V: During the life of the contract Yous bulldoze and operate your vehicle just similar yous own it. You volition hear periodically from the leasing company to make sure you're a happy client, but other than that the car is yours to manage as you wish.

Step Six: End of the contract If you have a traditional operating lease, you'll hand back the vehicle at the end of the lease term. When do you this, in that location may be additional charges to pay if: You lot have driven excess kilometres above the agreed limit, and/or At that place is a need for refurbishment for annihilation considered to be above 'wear and tear.' If you take a finance lease, you'll get ownership of the automobile once the value of residual balance owing is paid. You can exercise this by paying cash, arranging finance or trading the vehicle in for another vehicle.

A Typical Vehicle Lease Example: Brian the Plumber

• Brian is driving a 2002 van which continues to break downwards. This costs him lost jobs and hefty repair bills.
• Brian knows he drives between 50,000 and 70,000 km every yr and doesn't take $30,000+ to purchase a new van, nor a used one.
• He is looking at a lease for a new or used van and will sell his erstwhile van to comprehend the ongoing cost.

Brian had 4 options.
Option 1 – Purchase a $30,000 new van from a local dealer or a $twenty,000 used van.
When making enquiries, Brian was offered $4,000 for his existing van. To purchase the used van, he would have to get a loan for effectually $16,000 and this financing, at an interest rate, was going to cost about $535 per month. The used van has a one year guarantee.

Option 2 – Arrange an operating charter on a used van
Brian saw that he could become a 2022 Nissan van for $300+GST per month for three years, and he was offered a 'fully maintained' contract which covered mechanical breakdowns during the charter. Brian needed to put down $3,000 in advance to secure the lease (this coin is unremarkably arranged from selling the existing vehicle). All payments, including the advance, are income tax-deductible.

Option 3 – Suit a finance lease on a new van
Brian establish a 2022 Nissan van that would cost $35,000 and offered a three-year warranty.
The toll was $500 + GST per month on a 48-month term.
Brian needed to put down $8,000 in advance to secure the lease (this coin is usually bundled from selling the existing vehicle). In this case, Brian's van was simply worth $4,000.

Option iv – Keep the existing van
Brian tin can keep his electric current van, but in that location is no certainty how long it will final and how reliably it will run. Cancelling jobs affects Brian'southward reputation and build a trusted reputation.

Lessons nosotros tin can learn from Brian

1. Operating leases can exist more toll-effective than vehicle finance without the risks of breakdowns and mechanic costs.
2. Operating lease costs are an operating expense that bask full tax deductibility.
3. Brian, by selecting option 2, can arrange a reliable new vehicle for his business organisation and focus on edifice his business organization knowing the risks are transferred to the leasing visitor. ​

Vehicle Leasing - Our Determination

• Leasing a vehicle offers numerous benefits for your concern. We believe that, for most business, is about often more affordable pick than buying a vehicle outright.
  
• At that place are a number of tax benefits, and businesses avert having a depreciating asset sitting on the balance sheet. The greenbacks freed up by paying a monthly expense rather than an entire debt limits business concern hazard. It too allows a business to put the money towards growing their profits.
  
• Operating and finance leases provide cashflow certainty and remove the risks that come with vehicle ownership. Leases likewise minimise time spent on making decisions about vehicle disposal.
  
• Every business organization is different, so brand your vehicle leasing decision advisedly.

langloisjusnis.blogspot.com

Source: https://www.moneyhub.co.nz/vehicle-leasing.html

Share this post