Finance For a Steal

OK, time for a change… something bigger, faster, newer… every so often we need to see something fresh in the driveway. But what is the best way to get it? You have to buy it, right? Wrong, we'd like to show you few ways of getting into a new import without buying it… or using packing tape or a coat hanger. When we're buying, most of us first think of a personal loan from a bank or credit union. We get together some sort of security; an asset or guarantor, accept a pre-determined interest rate and we buy. However, apart from variations in the term, loans are a comparatively inflexible finance option. Second thought - hire purchase. Here the period of the loan and interest rate are set and the monthly payments repay the full amount by the end of a one to five year term. Many people find hire purchase a good way to buy their car, but we said we show you how to get behind the wheel without buying, so what's the score? If you use your car for business and private purposes or your employer is willing to include a car as part of your salary package, then you don't need to buy, you can lease. Leasing means you just pay to use the car and the main form of security is the vehicle itself. At the end of the lease term you can simply hand it back, take out another lease or, in some cases, buy it. Businesses running fleets of cars have found leasing, rather than owning a continually depreciating asset, makes most financial sense and the same may apply to you. There are some restrictions, but if you are after the flexibility of a tailored package and interest rate then you should investigate further.

Lease products come in two flavours:

Operating Leases: Like a long-term rental, with payments based on a fixed monthly fee. Here the 'residual risk' on the car lies with the finance company i.e. If at the end of the lease, the car is worth less than was expected at the start, then it is not your responsibility to make up the difference. Operating leases give you the benefit of taking no risk on the continually depreciating value of a car, but there is also no opportunity to buy the car at the end of the term. This type of lease isn't for everyone, but if you own a company and are looking at a R34 GTR, the lease payments will be 'off balance sheet' which improves the look of your bottom line.

Finance Leases; An increasingly popular product where the monthly payments depend on the term, interest and the residual value of the car. Here the lessee takes the risk on the residual value so that if at the end of the lease, the car isn't worth what was expected, then the lessee makes up any difference. Of course, if the car is worth more, they get to keep the difference without being subject to property fringe benefits tax.

One of the great benefits of a finance lease is it's ability to be 'novated'. A Novated Lease is a way of including a car as part of your salary package to help reduce your taxable income. The lease payments, running costs, fringe benefits tax (and in one case insurance*) are then taken out of your pre-tax salary allowing you to reduce your pre-tax income and drop back into a lower tax bracket.

How does this work? You simply take out a finance lease and then arrange for your employer to make the payments through a novation agreement that exists for the term of the lease or as long as you stay with the company. If you resign or are made redundant, then the responsibility for the vehicle and lease payments becomes yours or your next employers. At the end of the lease, you can choose to turn over the vehicle into a new lease or trade it in on another leased car. With a Finance Lease you also have the opportunity to buy the car, the lessee usually makes an offer for the vehicle and pays out or refinances the residual.

Leasing offers the benefit of being able to change your car more often and can be more convenient with most costs able to be tied into one payment. We recommend you consult an accountant to ensure your choice of finance best suits your circumstances. However, using leasing to acquire your next import may well have significant advantages over buying (or thieving) in terms of convenience, flexibility and cost.

*To find out more about leasing combined with the best insurance rates we've seen CLICK HERE.