Lease vs Hire Purchase

Finance Lease Loan Hire Purchase
Terms Lease term is up to you but would typically be 3 to 5 years. Loan contracts are usually signed for 3 to 5 years. 7 Year terms are available in certain cases. Loan contracts are usually signed for 3 to 5 years, but again it is up to you.
Type of equipment Equipment choice is up to you and your budget! The lender owns the equipment for the term of lease. You may have the option to purchase it at the end of the term. Equipment choice is up to you and your budget! You own the equipment and security over it would be removed once you have made your final repayment. Equipment choice is up to you and your budget! You own the equipment once you have made your final repayment (including a balloon payment if applicable).
Up-front costs Up-front costs usually include the first month’s rental, stamp duty and registration fees, although you can sometimes finance the on-road costs. Up-front costs usually include a deposit, stamp duty, establishment and registration fees. Most of these government fees can be added to the loan. Up-front costs usually include a deposit, stamp duty, establishment, registration fees and your first loan repayment. Some of these fees may be added to the CHP amount financed.
Repayments Monthly payments are calculated based on the vehicle’s cost excluding GST, the term of the lease, interest charges, duties and other fees. GST is charged on each lease rental payment. Loan repayments can be monthly or fortnightly, and are based on the total amount of the purchase price inclusive of GST, plus interest charges, duties and other fees. GST is not payable on the loan repayments. Payments are based on the total amount of the purchase price inclusive of GST, plus interest charges, duties and other fees. GST is not payable on the loan repayments.
Balloon/Residual A Finance Lease must have a balloon payment which reflects the value of the vehicle at the end of the term. Typical scenarios are:
3 years with 45% residual
4 years with 35% residual
5 years with 25% residual
Balloon variances of up to 5% either way is common
Unlike Lease, with a Loan you have the option with or without a balloon. A balloon payment will reduce your regular repayments and assist your budget requirements. But remember, what you don’t pay now, you do pay later! Unlike Lease, with Hire Purchase you have the option with or without a balloon. The balloon does little to your overall tax claim, and its main benefit is to suit individual budgets and affordability. Typical terms and balloons are similar to that shown in Lease column.
  Finance Lease Loan Hire Purchase
Insurance Comprehensive insurance is compulsory and the responsibility for payment of premiums rests with you. Comprehensive insurance is compulsory and the responsibility for payment of premiums rests with you. Comprehensive insurance is compulsory and the responsibility for payment of premiums rests with you.
Early termination You are responsible for any early termination charges stipulated on the leas contract. Make sure you understand them. You are responsible for paying off the loan, there could be costs associated with early repayment of the loan. You are responsible for paying off the loan, there could be costs associated with early repayment of the loan.
Vehicle return With a finance lease it is accepted practice to make an offer for the equipment at the end of the term. You keep the equipment! On making final payment you own the equipment unencumbered. You keep the equipment! On making final payment (including a balloon payment if applicable) you own the equipment.
Future value You are responsible for any difference between the residual value and the market value with a finance lease. If you decide to sell or trade-in the equipment at the end of the loan term, the risk of its future value is yours. If you decide to sell or trade-in the equipment at the end of the loan term, the risk of its future value is yours. You also have the option of refinancing the balloon amount over a new term if you choose to keep the equipment longer.
Maintenance You are responsible for the maintenance of the equipment during the lease term. An operating lease may include a maintenance contract which would transfer this responsibility to the lessor. You are responsible for the maintenance of the equipment. You are responsible for the maintenance of the equipment.
Kilometers during the term An operating lease may impose a limit on the number of kilometers you may travel. However, bear in mind that the higher the kilometers the higher the lease rental. There will most likely be extra charges if the actual kilometers exceed the limit set on the contract when you return the equipment. With a Finance Lease there are no restrictions, however, high kilometers will affect the market value. No limit. The equipment is yours. Use it as you please. However, the higher the kilometers/hours, the lower the resale or trade-in value of your equipment. No limit. The equipment is yours. Use it as you please. However, the higher the kilometers/hours, the lower the resale or trade-in value of your equipment.
  Finance Lease Loan Hire Purchase
End of term At the end of an operating lease you simply return the equipment. With a Finance Lease you can return the equipment and pay any difference between the residual value and the market price or make an offer to purchase the equipment for the residual value. At the end of the loan term, the equipment is yours to keep. At the end of the loan term, the equipment is yours to keep (provided all payments have been made, including a balloon payment if applicable).
Tax Benefits You may be able to claim the repayments as your tax deductible expense based on the percentage of business usage, together with the ongoing running expenses of the vehicle. You may be able to claim depreciation of the purchase price of the equipment plus interest charges as your tax deductible expense based on the percentage of business usage, together with the ongoing running expenses of the equipment. Same as Loan.
Claim limit Passenger vehicles over the motor vehicle depreciation cost limit (also known as luxury car limit) cannot be claimed as a lease. This cost limit is indexed and adjusted annually. For the 2011/2012 income year the cost limit is $57,466. The claimable depreciation is limited by the motor vehicle depreciation cost limit. The purchase price above this limit cannot be claimed. The portion of interest calculated for the amount over the limit also cannot be claimed. Same as Loan.


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