Types of Leases
There are two main types of leases but of course, every lease will have its own unique combination of interest rates, terms, etc.
An Operating Lease will give you use of the truck for a set period, and you will carry no risk and, therefore, no benefits linked to the ownership except, obviously, the benefit of using it. When the lease time is up, you give back the truck. Some financiers might offer a purchase option at the time based on the difference of the market value versus a portion of what you have paid. The operating lease payments are deducted as an expense.
A Capital Lease gives you the right to use the truck with some of the risks and some of the benefits of owning it. It will also give you the option of buying the truck, discounted, at the end of the lease. The truck will be on your books as an asset and the lease will be on the books as a liability. The interest incurred is deducted as an expense and the truck is depreciated over the timespan of the capital lease.
The Big Buy
Of course, you will be comparing leases to buying the truck outright. If you buy the truck then it will go on your books as an asset, and the loan you took out will be on the books as a liability. You carry all the risk and all the benefits and you can depreciate the majority of the purchase price over the tax life of the truck (not the truck’s life, its tax life). As with capital leases, the interest incurred is deducted as an expense.
And Now The Final Decision
Of course, we can’t answer that question for you in a blog. It is a unique decision highly dependent on each individual business, current rates, current lease or loan offerings and current tax regulations and statutory caps.
What is your current cash balance or YOY profitability? What is the depreciation legislation at time of reading this article? If you have a good cash balance, profitability and depreciation options then go for the buy option. If cashflow is tight then an operating lease might be the answer with monthly expenses and low operating risks.
If you want to make sure you have considered all the options and want to see if there is a customisable finance option for your business’ truck loan in Ballina, Gold Coast & Byron Bay give us a call today Ph.: 1300 557 027.