Tuesday, Jan 09, 2007 at 23:57
G'Day Tuff,
When you lease a vehicle you are effectively renting it for the period of the lease. Ownership of the vehicle remains with the leasing company. You are only paying for the right to use it as if it were your own.
The most usual end for a leasing agreement in the past has been to simply hand the vehicle back at the end of the set term and enter into a new agreement for another new vehicle. Part of what you pay for is the right to not be stuck with the vehicle at the end.
Leasing companies have provisions in the lease agreement for what they call "fair wear and tear". This is dependent on the length of the lease such that a 2 year lease would mean that the vehicle should be in very good nick but a 5 year leased vehicle can have minor paintwork damage and stuff and still be OK.
Provided your vehicle condition fits in the definition of "fair wear and tear" then you have the entitlement to simply hand the vehicle back with the same standard equipment with which it was delivered (spare wheel, jack, tool kit and owners manual).
The Leasing Company then put it to the auction house and hope that they can get enough for it to cover the remaining money they lent to you (the residual). If they don't then they wear it as a business expense against the interest they earned from your lease payments over the years and probably claim a tax break for it as
well! If they cover the residual handsomely then they have made a nice profit.
If the lease company assess the vehicle when you hand it back to be in a condition that is outside thier definition of fair wear and tear then they will send it to a repairer to bring it up to scratch and send you the bill. This is usually only the case if there is unrepaired body damage or ripped upholstery or the like. Holes in the dash where you had radios installed are another biggie!
In the last few years Novated Leases have been seen as a pathway to buying and keeping a new vehicle at much less than retail price (due to the savings on Income Tax and GST). So many people will pay out the residual value at the end of the term and either keep the vehicle or dispose of it privately (and make a few bucks).
So, if after 5 years you think you can get 10 grand for the lux and the residual is 7 then you pay up the 7 grand, assume ownership of the vehicle, and then sell it off. You would then make your own assessment of how much the accessories and modifications are worth, either on the vehicle as a package, or removed and sold seperately or transferred to your next vehicle.
Another option is to renew the lease for another couple of years and enjoy some more tax savings. Or pay it out and just run it as a normal privately owned vehicle for a while.
The choice is yours!
Cheers
Muddy
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