Leasing or buying vehicles and equipment
Understand the differences between leasing and buying and which might work better for your business.
Your business may need vehicles, plant machinery or other equipment. You can often choose whether to lease these items or buy them.
Leasing means you rent the vehicles or equipment from a leasing company that owns them.
Buying means you pay for and own your vehicles or equipment outright. You can apply for a loan if you don’t have enough cash to pay for expensive items upfront.
Leasing or buying vehicles
A motor vehicle is a major expense for your business. It’s important to consider whether leasing a car or buying one is the better option.
Use this table to compare the main differences between leasing and buying.
| Leasing | Buying | |
|---|---|---|
| Upfront cost |
Generally a lower upfront cost. | Generally a higher upfront cost. |
| Ongoing repayments | A vehicle lease has monthly repayments, fees and charges. Together these can end up costing as much as a car loan. | If you take out a car loan, your repayments can be similar to leasing. However, you will end up owning the car outright. |
| Depreciation | Because you don’t own the vehicle, your money isn’t tied up in a depreciating asset. This can make it easier to manage your cash flow. | The value of your vehicle will depreciate. This makes your investment less valuable over time. |
| Upgrades | It’s easy to upgrade your vehicle every 2 or 3 years when the lease ends. | To upgrade you’ll need to sell your current vehicle and buy a new one. |
| Modifying the vehicle | You’re not allowed to modify the vehicle. | You can modify the vehicle to meet your needs (as long as the modifications are legal). |
| Repairs | Your lease may cover some repair costs. |
You are responsible for any repair costs. |
| Business asset | You can’t claim the vehicle as your asset for borrowing or other financial purposes |
You can claim the vehicle as your own asset, even if you bought it with a loan. |
| If you no longer need it | You may need to make payments for the full lease period, even if you stop using the car. |
You can sell the car if you no longer need it. |
| Financial risks | You might not be approved for a lease if you have a bad credit history. |
If you use the vehicle to secure your loan, it can be repossessed if you don’t make repayments. |
Tips for leasing or buying a vehicle
- Research the companies you deal with to make sure they’re reputable.
- Shop around to make sure you’re getting the best deal. This includes looking for a good loan rate or lease conditions.
- Work out how much you can afford in lease or loan repayments each month.
- If you’re still not sure whether it’s better to buy or lease, ask your registered tax professional or financial adviser.
Taking out a car loan
If you want to buy a vehicle but can’t pay upfront, your business may be able to get a loan through either a:
- bank or other financial institution
- car dealership.
The car is generally used as guarantee to secure the loan.
Dealer finance
Dealer finance is a type of loan that most car dealerships offer on new cars.
Do your research before signing up for dealer finance. The loan might include rates and fees that add to the cost.
Dealer finance can also include a large payment at the end known as a ‘balloon’ or ‘residual’ payment. This means lower ongoing repayments, but you’ll need to plan for this lump sum when the loan term ends.
Guaranteed asset protection (GAP) insurance
GAP insurance can cover your remaining car loan repayments if your car is written off before you’ve finished repaying it.
You usually need a comprehensive motor vehicle insurance policy before you can get GAP insurance.
Talk to your insurance broker, financial adviser or registered tax professional for more information.
Goods and services tax (GST) and vehicles
You might be able to claim a credit for the GST you pay when buying or leasing a vehicle for business purposes.
If you only use your vehicle partly for business, you can usually claim a partial GST credit.
To claim these credits you must be registered for GST.
Leasing or buying equipment
Most businesses need equipment such as:
- machinery
- tools
- appliances
- office furniture
- computer equipment.
Do your research before you decide whether to buy or lease what you need. You can have a mix of bought and leased equipment.
Use this table to compare the main differences between leasing and buying.
| Leasing | Buying | |
|---|---|---|
| Cost | Making regular payments means you can budget for the equipment over time. However, you may end up paying more than you would if you bought upfront. |
Paying upfront can save you money in the long run. If you don’t have the cash to buy what you want upfront, you might have to either:
|
| Choice | Leasing is less of a commitment than buying, so you have more flexibility to try something new. But depending on your leasing company, some brands or models might be unavailable. |
You’re not limited by a leasing company’s stock, so can buy whatever you want. Since you own the equipment, you can modify it to meet your needs. |
| Upgrades | Leasing makes it easier and quicker to upgrade to the latest equipment. | You may need to stick with what you bought. For technology that gets outdated quickly, you might not get much money back if you sell it. |
| Tax deductions |
You may be able to claim leasing costs as a tax deduction if you use the equipment solely for business. |
You may be able to claim the equipment or its depreciation costs as a tax deduction. |
| Repairs and maintenance |
The leasing company is usually in charge of maintaining and repairing the equipment. While this saves you paying for repairs, it might be difficult to get things fixed if you disagree about the terms and conditions of the repairs. Your leasing company might also need you to use specific repairers. |
You’re responsible for repairs and maintenance. That means you can get problems fixed straight away. You will have to pay for repairs and maintenance unless they are covered by warranty or insurance. |
| If you no longer need it |
You may need to make payments for the full lease period, even if you don’t need the equipment anymore. Because you don’t own the equipment, you can’t sell it to make money back when you’re done. |
You can sell the equipment and recover some of the cost when you no longer need it. |
Tips for buying or leasing equipment
Make a list
Write down all the equipment you need before you start buying or leasing anything. Include this list in your business plan. You can update it as your business grows.
Think about your space
Measure your workspace and think about where your equipment will fit. You could use a digital space planning tool to design your space and work out the furniture and fixtures you need.
Choose quality over price
Don’t always go for the cheapest equipment. If it breaks often or doesn’t meet your needs, it could end up costing you more in the long run.
Focus on quality and value, not just the lowest price. This is especially important for your critical items. For example, if you’re running a restaurant, you should get the best knives, pots, pans and cooking appliances you can afford.
Look at consumer reviews and feedback to see if an item is good quality and will do what you need.
Check for local repairers
If you’re buying equipment, being able to get it serviced and repaired it in your area can save you time and money. You should also check if spare parts are easy to buy or import.
If you’re leasing equipment, check whether your leasing company has any approved repairers in your area.
Consider used equipment
You can often save money by buying secondhand equipment. Think about what equipment you need to get new and what you may be able to buy used.
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