The growth of leasing here has, up until recently, been as a result of the number of large businesses running big fleets of cars, who long ago realised there was little point in owning a continually depreciating asset.

They figured why have the hassle of having to maintain and dispose of cars and light commercials which were often turned over in relatively short periods when you could simply pay for the use of the vehicle and leave everything else to the lease company.

Car leases are usually offered by finance companies, both the traditional and vendor types or specialist leasing firms. Some of the traditional finance companies only have a small interest in leasing so probably the best place to investigate leasing is through either a vendor finance company or specialist firm.

Because of the volume of business done by the leasing firms and vendor finance companies, they tend to have a wider range of products and are able to tailor them specifically for your needs. Most carmakers now have either their own in-house finance companies or sell branded finance and lease products underwritten by existing finance companies.

You can also arrange finance and lease packages through the mainstream finance organisations like AGC, Esanda, LeasePlan and Orix although the growth market is definitely in vendor finance.

Vendor finance companies such as BMW and Volvo claim that because their parent companies build the cars they are financing, there is a greater knowledge of the product to help set realistic residuals and tailor products to suit specific vehicles.

They also want to ensure brand loyalty when it comes to car changeover time so they are more likely to offer a more competitive deal because they want both your finance business and automotive business.

However, when it comes to signing on the dotted line whether with a vendor or non-vendor finance company the real difference in lease costs will depend on the type of finance arrangement and your individual circumstances rather than the service provider.

TYPES OF LEASE FINANCE
Lease products fall into two categories as either a finance lease or operating lease and vary in the way they treat ownership, disposal and residual risk on the vehicle.

Finance leases are becoming increasingly popular because of the ability to novate the lease. As a lease, no deposit or trade-ins are made and the monthly payments are worked out by the finance company based on the term of the lease, interest on the finance charge and the residual value of the car at the end of the term.

However, you are the one who takes the risk on the residual and if at the end of the term the market says the car is not quite worth what was expected three years earlier, then the responsibility to make up the difference to finalise the contract is yours.

Although under the definition of a lease you gain no equity in the vehicle, it is common practise under finance leases to make an offer for the vehicle at the end of the term and pay out or refinance the residual to take ownership.

NOVATED LEASE
Novated leases are becoming a very popular way of including a car as part of your salary package to help reduce your taxable income.

You take out a standard finance lease on a vehicle of your choice. You then arrange for the lease payments to be paid by your employer through a novation agreement which remains valid as long as you stay with the company.

The lease payments, running costs and fringe benefits tax any car supplied to an employee for their private use is subject to FBT calculated on a sliding scale depending on the value of the vehicle and annual kilometres travelled are then taken out of your pre-tax salary.

If you resign or the words forced redundancy start being bandied about in the canteen, then the responsibility for the vehicle and the subsequent lease payments reverts to you.

At the end of the lease, the choice is there to turn over the vehicle into a new lease, trade it in on a new car on a novated lease or even purchase the vehicle through a third party.

As with any standard finance lease, the responsibility for the residual lies with the lessee and if at the end of the term, the market for used Porsches has taken a dive then it is you who must make up the difference to finalise the lease contract.

But similarly, if there is a sudden demand for purple Range Rovers and you have acquired, and then decide to sell, the vehicle, you are not subject to either a property fringe benefit tax or tax on any profit made on the sale of the vehicle.

According to Volvo Car Finance's manager insurance and product marketing, Stephen Charles, the main tax benefits for novated leases lie in the ability to reduce your pre-tax income.

"The majority of people that do fall into the bracket of having a vehicle packaged generally have some component of the salary in the 45 cents in the dollar, the highest tax bracket.

"The car component comes out of pre-tax so it reduces your taxable income so in the majority of cases for people who are middle management it will drop them back into that lower tax bracket.

"It can be a way of effectively avoiding bracket creep," he said.

OPERATING LEASE
The operating lease, is essentially a long term rental, and is becoming increasingly popular especially for cars breaking the six figure bracket. Operating leases can be non or fully maintained with payments based on a fixed monthly rental. The residual risk on the car lies with the finance company, there is no question of you gaining any equity and at the end of the term you simply hand back the car.

Apart from the benefits of taking no risk on what is a continually depreciating asset, if you own a company, the lease payments are off balance sheet thereby improving the look of your bottom line.

While the finance products outlined here are fairly basic, before you buy any sort of car you should consult an accountant to ensure your plans best suit your circumstances. Once you have decided on what sort of finance product you need, then shop around.

Don't feel that because the finance company or bank is lending you the money, they should dictate the terms. Competition is rife with all financial institutions vying for business so the force is with you, the customer.

Article by Joe Kenwright and the Carsales Network

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