Have you ever heard leasing out a Car? How can you benefit from this option? When should you go for this?
Purchase a car or just lease it out!
Gone are the times when the options of getting a new car were to either purchase it or wait for a company car. But, today, one has a choice to either opt for car purchase or lease it out. There’s a wide variety of loans ranging from traditional bank loan to novated lease.
Lease a car and pay only for the use of car, on completion of the lease period, one can hand it back to the leaser, take out another lease or even purchase the vehicle through a third party. Leasing out is a good option, if your employer is willing to include a car as part of your salary package. Also get exempted from paying tax, especially for cars in the prestige or luxury sector.
Lease finance can be classified into two broad categories:
Finance Lease or Operating lease and Novated lease are the two categories of Lease finance.
Finance lease are quite popular due to the fact that they have an ability to novate the lease. There’s no deposit or trade-ins involved in such lease. Monthly payments are made based on the lease term, interest on the finance charge and the residual value of the car at the end of the term. A borrower may have to take risk on the residual amount, if the car is not worth the amount three years later, he will have to make up the residual difference and finalise the contract. However, one can take ownership, by refinancing the residual.
Another way out to have a car and get tax exemption is to go for novated lease. One can take out a standard finance lease on a car of his choice. The employer can pay the employee’s lease payments through a novation agreement which is valid till the last working day. The lease payments to be made, running costs of the car used for an employee’s private purpose will be subjected to FBT (Fringe Benefit Tax). This FBT is calculated on the basis of the car value. The kilometers traveled annually are covered by the pre-tax salary. If the employee resigns from the company, then the lease payments will be made by him and not the company any more.
Finally, be wise enough in making a decision. Take enough time in deciding which option suits you better.
Kirthy S, Content developer for finance domains
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