Leasing vs business vehicle finance: What you need to consider

Alex Patsellis

Friday, 14 August 2020

Whether you’re looking to buy a business vehicle to get from A-B, transport goods, or even set up a food truck, you’re probably wondering whether it makes more sense to finance or lease your vehicle.

You’ve come to the right place—this post explores the pros and cons of business vehicle finance as well as leasing so you can make a confident and informed decision.

If, at any point, you’re overwhelmed by choice (or simply don’t have time to comb through dozens of options) our lending experts are here to help you find and apply for the right funding solution.

Let’s dive in and explore your options...

Types of business vehicles

Business owners typically look to fund the following types of vehicles:

  • Trucks for transporting goods
  • Food trucks
  • Cars
  • Utes
  • Fleet
  • Motorbikes

No matter what type of vehicle you’re looking at, there are a range of finance solutions available. The first thing to consider is whether you’re looking at a new or used vehicle.

If you’re undecided, that’s okay, but either way it’s worth understanding how new vs used vehicles change the game for lenders so you can factor this into your decision.

Financing new vs used vehicles

Finance is available for both new and used vehicles but purchasing new will generally result in cheaper rates. That’s because your lender can more easily value a new vehicle as opposed to an aging one, and therefore mitigate risk in lending to you.

Without having a clear idea of how much your car is worth, your lender will have difficulty in judging whether lending to you is a risk worth taking.

That said, it’s not impossible to finance a used car—if this is the route you’re thinking of taking, we can help you find a lender and rate that works for you, based on this requirement.

Leasing vs financing a business vehicle

Leasing

When it comes to business vehicles, there are two types of leasing. A standard lease agreement is similar to renting out a property. Once you’ve paid off the value of your car you’ll typically return it, though some lenders will allow you to extend the lease or buy the car at its depreciated price.

The good thing about lease agreements is that often, your lender will be responsible for maintenance costs (similar to having bills included in rental payments). All you’ll have to worry about is making your repayments on time.

A novated lease is slightly different in that it’s a three-way agreement between you, your employer and a lender, and allows an employee to drive the car they want with all running costs covered by their employer. How? Essentially, with your employer's approval, you can leverage your pre-tax salary to pay for your car lease and maintenance, making a novated lease a great way to save money.

Here are the pros and cons of leasing a business vehicle in more detail to help you decide if it’s right for you:

Pros:

  • Minimal upfront costs: you don’t need a downpayment or security to lease a business vehicle. This means you can carry on with the day-to-day running of your business, without disrupting cash flow.
  • Lower repayments: compared with making repayments on a business vehicle loan.
  • Drive the vehicle you love: leasing gives you access to a new vehicle and the option to upgrade it at the end of your lease term, if desired. Paying for a vehicle you love (as opposed to one you don’t enjoy) can feel much more worthwhile, and you’re never stuck paying off an outdated vehicle.
  • Tax perks: vehicle lease payments are typically tax deductible (provided you’re using the vehicle for at least 50% business purposes).
  • Take advantage of novated leasing if you’re a business owner: If you’re a business owner, offering a novated lease to your employees comes with many advantages and little cost to your business. Better yet, if you provide a vehicle to an employee, you won’t be liable for it if they leave your company—the lease, and vehicle, will follow them.

Cons:

  • Mileage restrictions (and hefty charges if you go over them): on the other hand, if you plan on doing a lot of driving, leasing also helps you avoid paying for costly repairs on an aging vehicle.
  • The vehicle isn’t yours: your repayments don’t lead to an owned asset at the end of your lease which could end up being more expensive than other types of finance.
  • Additional costs: you might still be required to pay for maintenance.
  • Restrictions: as mentioned, the vehicle is owned by your lender so you can’t modify or alter it in any way. There could also be restrictions on how the vehicle is used—if in doubt, it’s best to check with your lender or a Valiant expert to make sure you can use your vehicle as intended.

Financing

Funding a business vehicle with equipment finance (also known as asset finance) is another option. Financing is a good compromise between outright ownership and paying for temporary use of your vehicle.

There are a few different types of asset finance to choose from—some let you use your vehicle without having to commit to ownership, while others let you own it from the get-go. It all depends on your preferences.

There are also options to upgrade or buy the vehicle outright at the end of your term—depending on what's important for you, our asset finance experts can recommend a tailored solution aligned with your current situation and future needs.

Here are the pros and cons of financing your vehicle in more detail:

Pros:

  • Tax deductions: often, interest payments are tax deductible provided you’re using the vehicle for at least 50% business purposes.
  • Save money: you’ll end up saving money over the long term as your repayments are going towards an asset you’ll later own (and can therefore sell to make some money back).
  • You can modify the vehicle and use it exactly how you want: this gives you a sense of freedom over your vehicle and you don’t have to worry about getting your lender’s approval for modification or other business needs.
  • No mileage restrictions: drive your vehicle as often as you want without worrying about additional charges.

Cons:

  • Upfront cost required: often, your vehicle can double up as collateral for your loan, but you’ll still need a downpayment.
  • Wear and tear: vehicle maintenance is your responsibility entirely. Some people don’t like the idea of paying for wear and tear on an already depreciating vehicle. Consider the value of your vehicle when you first buy it vs having paid it off.

Buying outright: what to consider

Buying outright is the obvious third choice, but it’s not always the best use of capital even if you can afford it. If you’re considering it, take a look at your cash flow. Could your business continue to perform at the same capacity even after you’ve bought the vehicle in full?

If you think purchasing outright could lead to cash flow problems, financing or leasing could be the better way to go.

Types of business vehicle financing

There are three main ways to finance business vehicles:

Equipment Loan/Chattel Mortgage:

Your lender will provide you with funding to purchase a business vehicle and they’ll then use your new car as collateral—or security—in case you default on your loan.

Hire-Purchase Agreement:

Your lender will purchase a car on your behalf for you to borrow. They’ll own the vehicle until you pay it off in full—in which case you’ll own it outright.

Term Loan:

Secured and unsecured term loans can be used for a range of business purposes: investing in assets is just one of them. Just like a regular personal loan or mortgage, your lender will give you a lump sum and you’ll make regular repayments (usually monthly).

How to apply for business vehicle finance and ‘get to yes’

Applying for business vehicle finance is as simple as filling out this two minute form. Our lending experts will be in contact to confirm your details and find the best type of vehicle finance for your needs.

They do this by leveraging relationships we’ve built with over 80 leading lenders in Australia, meaning you have instant access to several lenders, rather than going direct to one and hoping they’ll have the best product and rate for you.

Key considerations when deciding on leasing vs financing business vehicles

  • Do you have a downpayment available?
  • How long do you plan on keeping the vehicle?
  • Do you prefer driving a new vehicle, or are you not fussed?
  • How often do you plan on driving the vehicle, and how far?
  • Can you afford to make consistent repayments including interest?
  • Can you afford additional costs including maintenance, fuel and insurance?
  • How much is your vehicle currently worth? How much will it be worth at the end of your repayment period?

The answers to these questions will help you decide between financing and leasing your vehicle. If in any doubt, have your answers ready for a lending expert who can use the information to find a product that matches your preferences.

Tips for funding business vehicles with bad credit

Bad credit can make it harder to qualify for finance in general, but it’s not the end of the world. Here are a few quick tips on improving your credit and working towards that business vehicle:

It might sound obvious, but getting your credit score where it needs to be is crucial—it plays a big role in determining whether lenders will offer you funding. There are a few things you can do to work towards a healthy credit score:

  • Start small. Paying off a personal credit card can build trust and instil confidence in lenders while giving your credit score a boost.
  • Make repayments on time. Woo your lender with a great track record of managing personal finances. This proves you’re responsible and increases your creditworthiness.

In the meantime, you can either purchase a vehicle outright if you have the cash available, or chat to a lending expert about whether you qualify for secured finance.

When assessing your eligibility for secured funds, lenders place less emphasis on your credit history and more on your actual business, as well as your available assets and equity.

The bottom line

There are lots of ways to fund business vehicles, and the right solution for you depends on your business, the type of vehicle you’re looking for, your available cash/assets/equity and a range of other factors.

With hundreds of vehicle financing products out there, a lending expert can help you pin down suitable options and tailor a solution that works for you at a great rate. Chat to one for free today. Valiant settles funds in as little as 24 hours, meaning you could be driving your vehicle in a matter of days.


Alex is a Senior Product Expert here at Valiant specialising in asset finance. He enjoys helping clients secure the right equipment for the job, so they can get on with managing their business.

Related Posts

Leasing vs business vehicle finance: What you need to consider

To lease, finance or buy your next business vehicle? Click for pros, cons and considerations.

Equipment lease financing: Is it really the best of both worlds?

Get the facts before signing on the dotted line.

The best type of equipment finance for your business

Wondering what type of equipment finance suits your business best? This quick guide covers it. Click to find out and compare finance from 80+ lenders.

4 Factors that impact your equipment finance interest rate

Don’t miss these 4 crucial factors that affect your equipment finance interest rate in Australia… Click here to compare and save on equipment finance.

What You Need To Consider Before Financing Vehicles For Your Business

Need a vehicle for your business? How does equipment financing work? Click to learn about your options and compare quotes from over 80 lenders.

The Essentials: What Is Equipment Finance?

If you're thinking about purchasing new equipment, an unsecured loan isn't your only option. Learn more about equipment finance here.

How To Use Equipment Finance To Grow Your Business

Getting equipment finance is one of the simplest and quickest ways to grow your business – and the equipment becomes the security!