Thinking of Leasing a vehicle? Feedback on amount of $ to fund package

Submitted: Friday, Apr 10, 2009 at 19:29
ThreadID: 67748 Views:2463 Replies:6 FollowUps:19
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Having had my lease for tow years now I can post real costs to those that want to follow this path.
1) Vehicle package was $40,000
2) Lease is over 4 years with a residual to pay out of $13,000
3) Current running costs & lease payments per year are 18,750. (Lease cost alone is 796.36a month)

As far as I can work out that in the end I will buy a 2007 Holden Rodeo with just over 100,00k for the 13k and apart from the running costs this is what it cost me (Though you would also have to add the lease fees and start up charges). If you do as I have and put a sum away each month then I will purchase the car for cash at the end of the lease.

Hope that helps someone and maybe someone can pick fault with my assumption - after all it has been a long day. :-) Cheers Tony.
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Reply By: Member - Tony B (Malanda FNQ) - Friday, Apr 10, 2009 at 19:30

Friday, Apr 10, 2009 at 19:30
Two years???? Not tow years - I Have not had to be towed yet? - It was a long day. Chow Tony
AnswerID: 359121

Reply By: Motherhen - Friday, Apr 10, 2009 at 20:21

Friday, Apr 10, 2009 at 20:21
Am i reading this correctly? It has cost you $88,000 (four years lease plus residual). How much is it worth now on the market?

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AnswerID: 359130

Follow Up By: Member - Tony B (Malanda FNQ) - Saturday, Apr 11, 2009 at 06:10

Saturday, Apr 11, 2009 at 06:10
Motherhen. Yes that is a misread. My running costs (Fuel, services,Rego, Insurance,Tyres) are included in that amount. The lease component is the 796 per month for 4 years = around $38,500 then a payout of $13,000. So I pay the cost of the car over 4 years and then have to pay the interest so to speak!
There is a yearly admin cost of around $350 a year and a startup fee of $500. So the car will cost $15,000 in the end.

The bonus is that I do not pay GST on fuel,Parts or services. I have to do the 25,000k though or it all goes pear shaped. Ii noticed a thread below that states you need a wage of $90,000. I earn no where near that at around 60k.
There are fringe benefit taxes in these cost somewhere, unfortunately I have not looked into the costings that deep, so can not explain how that effects the results and if at all.

It would be scary if it had cost that much :-) Cheers Tony
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Follow Up By: Member - Tony B (Malanda FNQ) - Saturday, Apr 11, 2009 at 06:43

Saturday, Apr 11, 2009 at 06:43
Also see AJB response below for total car cost - Cheers Tony
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Reply By: Member - Porl - Friday, Apr 10, 2009 at 20:26

Friday, Apr 10, 2009 at 20:26
and the tax side of things? at which tax rate were the before tax payments made etc cause if you paid after tax $18750 a year and bought it after 4yrs at $13000 also at after tax dollars then after 4 yrs and one day you will have paid $88,000 for a $40k vehicle which included 4yrs of personal use. That kind of sounds expensive to me, though i guess as always your top marginal tax rate and the amount of Km's you do can make quite a difference.
AnswerID: 359133

Reply By: Member - AJB (VIC) - Friday, Apr 10, 2009 at 22:19

Friday, Apr 10, 2009 at 22:19
So the vehicle cost $51,225.28 when it finally becomes yours. You may have the option to re-lease amother vehicle, hope that the trade in value is greater than $13000 so you can pocket the difference but then you are forever paying off vehicles and all you end up with is basically the same vehicle but newer.
Your running costs each year are $9193.68 and that will stay the same whether you own it or lease it unless you park it up and don't use it.
Leasing is good in that it does not tie up capital which can be good for some businesses which a very dependant on cash flow, like when you are starting out. Leases are often described as "I did it for a tax deduction". All capital purchases are a tax deduction when they are work related regardless of how they are financed as it is only the method of deduction alters.
My advise is to get a good accountant, a real good one, one that makes you think when you walk out of his office, "How did he/she work that out? I hope I don't go to jail." Be honest with the accountant as they will have no responsibility and it states that at the end of the financial statement because they are only interpreting and working with what you have told them.
AnswerID: 359152

Follow Up By: Member - Tony B (Malanda FNQ) - Saturday, Apr 11, 2009 at 06:29

Saturday, Apr 11, 2009 at 06:29
AJB - Thanks for that I Told you it was a long day - Yes you are on the right money. Lease cost + payout is actual vehicle cost. I think you would also have to add the admin costs of $2,000 as well so it will have cost me $53k in the end.
Having never owned a car outright, I have always paid them off I was looking at the final payout as the actual cost of the car. After that I own it and no more payments.

If I had brought the car as a secured personal loan I would have paid more. Doing a quick Westpac calculation at todays rates (when I brought the car the rates would have been a lot higher) the 40k loan would have cost me $54, 291.36. I also would not get GST credits back on the car consumables. So in the long term I would say I am a few thousand better off. The only way you could do better is to have a sizable deposit and be able to borrow less.

Having to do 25k is a downfall, if you are not already doing them as a matter of course. I have been, but this year I have a work car - so it may be a struggle to get the ks. Oh well have to do more exploring of OZ on the weekends - what a shame :-)

That sound right to you? Cheers Tony
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FollowupID: 627170

Follow Up By: Member - AJB (VIC) - Saturday, Apr 11, 2009 at 10:27

Saturday, Apr 11, 2009 at 10:27
Tony,
I dont know what your employment status is but with GST on a work related item, such as a vehicle, the GST component of anything for it whether it be servicing, tyres, fuel or even the purchase of the vehicle itself, is an Input Tax Credit which is deducted from the GST charged to your customers otherwise we'd be paying the ATO twice or even multiple times, and they'd love that.

The above is when you are self employed or the like. If it is a work place car provided by the employer, there are a number of options. The easiest is to have an amount taken out of your salary, before tax, for total private use of the vehicle after work hours including holidays, the employer organisation, or the leasing company, still pays for the fuel, tyres servicing etc and then drive like there is no tomorrow! You end up going through a heap of cars, like we've had 5 in the last 6 years, but that also saves that emotional attachment you sometimes get with cars!

All of the above is legitimate as a lot of tax rules/incentives are there for most people but they are well hidden and not greatly publicised. The stupid thing is, it appears the richer you are the greater the available deductions, provided you are still working.
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FollowupID: 627179

Follow Up By: Member - Tony B (Malanda FNQ) - Saturday, Apr 11, 2009 at 11:47

Saturday, Apr 11, 2009 at 11:47
Im one of those drive like there is no tomorrow fellows! :-). We are only here for a while so make the most of it!

I will keep the car. But dollar for dollar what do you think is best. Personal loan or lease? If you have a large deposit then it would have to be the smaller personal loan - but borrowing dollar for dollar I think the lease would win. Regards Tony
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Follow Up By: Member - AJB (VIC) - Saturday, Apr 11, 2009 at 15:12

Saturday, Apr 11, 2009 at 15:12
Each time a vehicle or asset is purchased, the method of payment can be either lease, loan or using your own cash. Every year, well with me anyway, I am in a slightly different circumstance as I work in a rythmic, volatile, unpredictable industry, the building one.

Leasing has its advantages when cash is scarce or used for other business requirements but generally the interest rate is slightly higher, the amount the interest is calculated on is higher (because the deposit is in effect the residual) but the payments are 100% deductable.

Personal Loans are also OK but I think they need to be a "chattel mortgage" to obtain full tax deduction benefits. You have to find the deposit but you can often get a lower interest rate, buy a good second hand vehicle and I think depreciation and the interest is the tax deduction.

At the time of purchase, you need to do the sums, assess where you are financially and where you expect to be financially at the end of the borrowing period. If we all had crystal balls we'd all know what the future holds and what to do but then it would all be a bit boring.

Whatever you decide, it is only a car and a relative small amount. You are not marrying the car or finance organisation and if it doesn't work out it is easy, although slightly expensive, to get out of provided you have a back up plan in place.

I also would not say I am financially well off. What I have got has nothing to do with luck and more to do with hard work, sacrifice and knowing when to save and when to spend, but I made a lot of mistakes along the journey.
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FollowupID: 627201

Follow Up By: Member - Charlie M (SA) - Sunday, Apr 12, 2009 at 23:07

Sunday, Apr 12, 2009 at 23:07
AJB
Regarding Chattel Mortgage, is only needed if on the GST cash system. If on GST accrual system any loan will do as you claim and pay GST upfront.
We had bank try to charge us chattel mortgage fees once and told them to loose them self, as on.
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FollowupID: 627319

Reply By: Rossc0 - Friday, Apr 10, 2009 at 22:52

Friday, Apr 10, 2009 at 22:52
Basic rule of thumb appears to be from the couple of accounts I have talked to recently, as a non business lease ie salary sacrifice is you need to be earning in excess of $90k and travelling in excess of 25000km each year to make it worthwhile.

And don't get the running costs as part of the lease payments as they vary all the time but do have it setup so that they recovered before tax and so that the employer claims the gst component.

Cheers
Ross
AnswerID: 359153

Follow Up By: Member - Tony B (Malanda FNQ) - Saturday, Apr 11, 2009 at 06:42

Saturday, Apr 11, 2009 at 06:42
Ross - Wish I did earn that much :-). The 25,000 k is the important part as it brings fringe benefit taxes down to an appropriate level. The running cost as part of the lease is fine, you can adjust payments at anytime as I have had to do as fuel went up. There are funds that come out before tax and some that must come out after tax.
For the first attempt it was good having someone handle it for you. If I was to do it again I would like to administer it and save the admin $. But you would have to have some time on your hands to do the paperwork. Cheers Tony

P/S I will not do it again, owning a new car costs too much and you loose a lot of $ in the process - Having a big deposit and buying a low mileage car that someone has put all the options on, is the best way to go I would say.
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FollowupID: 627171

Follow Up By: Rossc0 - Saturday, Apr 11, 2009 at 11:49

Saturday, Apr 11, 2009 at 11:49
My lease ends in 3 months and I will not be doing it again mainly as I am retiring about 18 months after that.

Not having the dollars to spend it was an effective way for me to purchase a good new car prior to retirement that will hopefully keep going well for at least another 10years.

Initial vehicle cost was $48k and final will be about $59k, at the time a personal loan would have cost about $10k more.

However as my employer claims the gst on all running costs as a tax input I don't pay that so all fuel etc has been significantly less over the last 5 years.

It becomes more attractive if you are travelling more than 40000km a year but we only just get over the 25000km each year.

Cheers
Ross
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FollowupID: 627187

Follow Up By: Member - Tony B (Malanda FNQ) - Saturday, Apr 11, 2009 at 11:55

Saturday, Apr 11, 2009 at 11:55
Ross - That is exactly why we did the lease :-) - but I have 2 more years. Cheers Tony
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FollowupID: 627188

Reply By: DIO - Saturday, Apr 11, 2009 at 10:17

Saturday, Apr 11, 2009 at 10:17
Using someone elses money to buy a vehicle will never work out to be econmically sound. You always end up paying heaps more than the vehicle is worth. Wow, how can you surviive after paying out $796 a month lease fee. No wonder the economy is in a mess with so many living on credit. If the vehicle is for business, you might even be a lot bett off getting a hire vehicle.
AnswerID: 359180

Follow Up By: Member - AJB (VIC) - Saturday, Apr 11, 2009 at 10:38

Saturday, Apr 11, 2009 at 10:38
That is the same with everything. Think about housing. I had a young fella (22) working for me and he and his girlfriend decide to build/buy a house. Repayments about $2000+ per month. They moved in, stressed out, and split up 6 weeks later!
Like most people today, they want it all and they want it now. Once upon a time you had to prove you could save, over a period of time, before you could borrow. Lending institions dont care what damage is created by their liberal lending policies and that is one of the reasons we are going through an adjustment at the moment
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FollowupID: 627180

Follow Up By: Saharaman (aka Geepeem) - Saturday, Apr 11, 2009 at 11:29

Saturday, Apr 11, 2009 at 11:29
You are absolutely right DIO - what a waste of money and all in the name of saving a bit of tax. As I said in a post a few days ago why let a third party (the leasing company) make money out of the deal. If you have your own company for business or your own super fund - let that entity buy the vehicle and lease it to yourself under mutually agreeable terms and conditions determined at arms length. Or alternatively if it is the company who will be using the vehicle - you could buy it in your private name and lease to your family company under the same arrangements.
In other words keep the extra costs associated with leasing in house. Obviously leasing companies do this sort of thing for a profit - so keep that profit for yourself or an entity you control
and own.
We have set up what our accountants call a service agreement between the entity that owns the asset and the entity that uses the asset. What ever the costs are - at least the profit in those costs goes to another family entity. Also we are not contrained to buy a new asset (as you are with leasing companies). A 4 year old vehicle (just coming off someone elses lease - poor sucker) is always a good buy with the biggest depreciation hit already taken.
But its important to get the service agreement professionally written and the benefits and costs must be fair to both entities - ie an arms length agreement.

Cheers
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FollowupID: 627182

Follow Up By: Member - Tony B (Malanda FNQ) - Saturday, Apr 11, 2009 at 11:39

Saturday, Apr 11, 2009 at 11:39
Obviously you fellows have had a good run in life and money is no problem! Other wise you would not make these comments. Not everyone has cash to burn. Some like me live within there earnings and commit to a viable level, The economy needs people like this to keep it ticking over.(Note*commit to a viable level, not the idiots that borrow to the max). Institutions with criminal interest levels are one of the problems.

DIO - Odd question you have put forward. When you lease a new vehicle you can not put a deposit on it as you have to lease the full purchase price. Not having a lot of income my lease is on the low end of the 4 x 4 market by a long shot. There will be others paying a hell of a lot more. But anyway if you really want to know, I do not Drink and do not smoke :-)......Say no more! Me owning one car is far from putting the economy in a mess! Go look at obscene corporate payouts/greed and individual greed for that answer.

Just in case you were having a go.... Then Go pick on fellows that just brought a top end European/import car (even a top shelf Landcruiser). As I said above I have tried it once and it is not for me. Over and Out Tony. :-) No need to reply..... :-)

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FollowupID: 627185

Follow Up By: Saharaman (aka Geepeem) - Saturday, Apr 11, 2009 at 12:04

Saturday, Apr 11, 2009 at 12:04
Tony,
My comments related to leasing in general - not you in particular. I do not know your personal circumstances so I cannot comment on the financial decisions you make. DIO made some gerneral comments (at least they seemed to me to be general) and I was agreening with him - i.e. his comment that it will never work out to be financially beneficial to use someone elses money to lease.
I did not mean to offend you in any way. Sorry for any misunderstanding,
Cheers
GPM
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FollowupID: 627189

Follow Up By: mowing - Saturday, Apr 11, 2009 at 15:31

Saturday, Apr 11, 2009 at 15:31
DIO, Go and take your high moral ground somewhere else. Tony didn't ask for a lecture on his repayment capacity. "Borrowing you always end up paying heaps more than the vehicle is worth" Did it take you long to work that one out?
"If the vehicle is for business you might be a lot better off getting a hire vehicle" What 24/7? Get out of here.

Mark
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FollowupID: 627202

Follow Up By: Member - Tony B (Malanda FNQ) - Saturday, Apr 11, 2009 at 17:13

Saturday, Apr 11, 2009 at 17:13
GPM - Your post was not there when I made this reply, so no worries at all! It was more directed at DIOs indirect Comments about the state of the economy and hire cars. Hire car is as stupid as it gets. :-)

It is obvious if you have the money to pay cash. I also agree that more and more people go beyond their means. I am of the old school though and budget within mine.

I cant fix all that - but maybe someone will be helped by reading this and make a choice that is good for them. Cheers Tony.
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FollowupID: 627205

Follow Up By: Davo_60 - Saturday, Apr 11, 2009 at 18:53

Saturday, Apr 11, 2009 at 18:53
Leasing is a very good option for some, often cheaper that a personal loan particularly when you factor in the tax advantages. When I last leased a vehicle it was about 5k per year cheaper to do so. Good discounts are given on the purchase of new vehicles as well as other benefits. But it doesn't suit all people. It is a good tax effective option for some when compared with forking out 60k capital on a depreciating asset also.

Leasing or borrowing money for vehicles has nothing to do with the current economic issues.

Dave

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FollowupID: 627214

Follow Up By: Member - Matt M (ACT) - Tuesday, Apr 14, 2009 at 08:22

Tuesday, Apr 14, 2009 at 08:22
DIO,

Just make sure that you understand the difference between a straight car lease (finance lease) and a packaged lease (novated lease). The (potential) savings in a packaged lease don't come from the finance company (of course they are making money) but from the tax advantages. As others have pointed out, these tax advantages will be dependant on a number of factors, but they DO work for some. If your blanket assertion is correct, then my accountant and I are a whole lot dumber than we thought. Maybe we are.

Saharaman,

Not disagreeing with your suggestion, but for the record most lease companies do not require that you lease a new vehicle. Most are happy if the vehicle is less than 8 years old at the end of the lease. You can even package a vehicle you already own if it suits you to do so, so your 4 year old vehicle is still an option on a 4 year lease.

Matt.
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FollowupID: 627422

Follow Up By: Saharaman (aka Geepeem) - Tuesday, Apr 14, 2009 at 09:01

Tuesday, Apr 14, 2009 at 09:01
Thanks Matt for that info update. I was not aware you could lease second hand vehicles through the traditional lease companies. I only ever leased a vehicle once and that was many years ago and I was under the impression at that time the vehicle had to be brand new.
Cheers
GPM
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FollowupID: 627424

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