Vehicle leasing

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Vehicle leasing is the leasing of the use of a motor vehicle for a fixed or indefinite period of time. It is commonly offered by dealers as an alternative to vehicle purchase. The key difference in a lease is that after the lease expires, the lessee must return the vehicle to the dealer or buy it.

Rationale

Leasing offers advantages to both buyers and sellers. For the buyer, lease payments will usually be lower than payments on a car loan would be, and qualification is usually easier. Some consumers may prefer leasing as it allows them to simply return a car and select a new model when the lease expires, allowing a consumer to drive a new vehicle every few years without the responsibility of selling the old vehicles. A lessee does not have to worry about the future value of the vehicle, while a vehicle owner does.^[1]

For the leasor, leasing generates income from a vehicle the leasor still owns and will be able to lease again or sell through vehicle remarketing once the original lease has expired. As consumers will typically use a leased vehicle for a shorter period of time than one they buy outright, leasing may generate repeat customers more quickly, which may fit into various aspects of a dealer's business model.

Lease agreement

Lease agreements typically stipulate an early termination fee and limit the number of miles a lessee can drive (for passenger cars, a common number is 12,000 to 15,000 miles per year of the lease). If the mileage allowance is exceeded, fees may apply. Dealers will typically allow a lessee to negotiate a higher mileage allowance, for a higher lease payment. Lease agreements usually specify how much wear on the vehicle is allowable, and the lessee may face a fee if that amount of wear has been exceeded.^[1]

The actual lease payments are calculated very similarly to the way loan payments are, but instead of an APR, the company uses something called the money factor.

At the end of a lease's term, the lessee must either return the vehicle to the owner or purchase it. The end of lease price is usually agreed upon when the lease is signed.^[1]

Vehicle leasing in Australia

Vehicle leasing is a common way for Australian businesses (including companies, partnerships and sole traders) to fund the purchase of cars and other vehicles.

There are three major types of vehicle lease used in Australia:

• finance lease, under which only the vehicle is leased,
• operating lease, under which the vehicle and its running costs are packaged into the lease, and
• novated lease, which is a form of salary packaging that some companies allow their employees to use to lease a vehicle.

Each of these types of lease have distinctly different tax treatments under Australian tax law.

See also

• Hire Purchase
• Closed-end leasing
• Installment plan
• Leasing
• Business Contract Hire
• Chattel mortgage
• Novated lease

References

1. ^ ^{a b c} "FRB: Leasing Guide". http://www.federalreserve.gov/pubs/leasing/. Retrieved on 2007-06-19.