Confused by lease vs hire purchase? We take a look at the differences between hire purchase, finance lease and boat loans to help you make an informed decision when buying a boat.
| FINANCE LEASE | LOAN | HIRE PURCHASE | |
|---|---|---|---|
| Terms | Lease term is up to you but would typically be 3 to 5 years. | Loan contracts are usually signed for 3 to 5 years. 7 Year terms are available in certain cases. | Loan contracts are usually signed for 3 to 5 years, but again it is up to you. |
| Type of vessel | Vessel choice is up to you and your budget! The lender owns the boat for the term of lease. You may have the option to purchase it at the end of the term. | Vessel choice is up to you and your budget! You own the vessel and security over it would be removed once you have made your final repayment. | Vessel choice is up to you and your budget! You own the boat once you have made your final repayment (including a balloon payment if applicable). |
| Up-front costs | Up-front costs usually include the first month’s rental, stamp duty and registration fees, although you can sometimes finance the on the water costs. | Up-front costs usually include a deposit, stamp duty, establishment and registration fees. Most of these government fees can be added to the loan. | Up-front costs usually include a deposit, stamp duty, establishment, registration fees and your first loan repayment. Some of these fees may be added to the CHP amount financed. |
| Repayments | Monthly payments are calculated based on the vessel’s cost excluding GST, the term of the lease, interest charges, duties and other fees. GST is charged on each lease rental payment. | Loan repayments can be monthly or fortnightly, and are based on the total amount of the purchase price inclusive of GST, plus interest charges, duties and other fees. GST is not payable on the loan repayments. | Monthly loan payments are based on the total amount of the purchase price inclusive of GST, plus interest charges, duties and other fees. GST is not payable on the loan repayments. |
| Balloon/Residual | A Finance Lease must have a residual payment which reflects the value of the vessel at the end of the term. Typical scenarios are: 3 years with 45% residual 4 years with 35% residual 5 years with 25% residual Residual variances of up to 5% either way is common. |
It is uncommon to have a balloon payment on consumer loans, however the facility is available and applications are welcome. A balloon payment will reduce your regular repayments and assist your budget requirements. But remember, what you don’t pay now, you do pay later! | Unlike Lease, with Hire Purchase you have the option with or without a balloon. The balloon does little to your overall tax claim, and its main benefit is to suit individual budgets and affordability. Typical terms and balloons are similar to that shown in Lease column. |
| FINANCE LEASE | LOAN | HIRE PURCHASE | |
| Insurance | Comprehensive Insurance is compulsory and the responsiblity for payment of premiums rests with you. | Comprehensive Insurance is compulsory and the responsiblity for payment of premiums rests with you. | Comprehensive Insurance is compulsory and the responsiblity for payment of premiums rests with you. |
| Early termination | You are responsible for any early termination charges stipulated on the lease contract. Make sure you understand them. | You are responsible for paying off the loan, there could be costs associated with early repayment of the loan. | You are responsible for paying off the loan, there could be costs associated with early repayment of the loan. |
| Vehicle return | With a finance lease it is accepted practice to make an offer for the vessel at the end of the term. | You keep the boat! On making final payment you own the vessel unencumbered. | You keep the boat! On making final payment (including a balloon payment if applicable) you own the vessel. |
| Future value | You are responsible for any difference between the residual value and the market value with a finance lease. | If you decide to sell or trade-in the vessel at the end of the loan term, the risk of its future value is yours. | If you decide to sell or trade-in the vessel at the end of the loan term, the risk of its future value is yours. You also have the option of refinancing the balloon amount over a new term if you choose to keep the boat longer. |
| Maintenance | You are responsible for the maintenance of the vessel during the lease term. An operating lease may include a maintenance contract which would transfer this responsibility to the lessor. | You are responsible for the maintenance of the vessel. | You are responsible for the maintenance of the vessel. |
| Kilometers during the term | An operating lease may impose a limit on the number of kilometers you may travel. However, bear in mind that the higher the kilometers the higher the lease rental. There will most likely be extra charges if the actual kilometers exceed the limit set on the contract when you return the vessel. With a Finance Lease there are no restrictions, however, high kilometers will affect the market value. | No limit. The vessel is yours. Use it as you please. However, the higher the kilometers, the lower the resale or trade-in value of your vessel. | No limit. The vessel is yours. Use it as you please. However, the higher the kilometers, the lower the resale or trade-in value of your vessel. |
| FINANCE LEASE | LOAN | HIRE PURCHASE | |
| End of term | At the end of an operating lease you simply return the vessel. With a Finance Lease you can return the vessel and pay any difference between the residual value and the market price or make an offer to purchase the vessel for the residual value. | At the end of the loan term, the vessel is yours to keep. | At the end of the loan term, the vessel is yours to keep (provided all payments have been made, including a balloon payment if applicable). |
| Tax Benefits | You may be able to claim the monthly repayments as your tax deductible expense based on the percentage of business usage, together with the ongoing running expenses of the vessel. | You may be able to claim depreciation of the purchase price of the vessel plus interest charges as your tax deductible expense based on the percentage of business usage, together with the ongoing running expenses of the vessel. | You may be able to claim depreciation of the purchase price of the vessel plus interest charges as your tax deductible expense based on the percentage of business usage, together with the ongoing running expenses of the vessel. |
Find out more about tax deductions for Charter Boat businesses on the ATO website.
If you are in the market for a new or used boat and you need a loan, look no further than Aussie Boat Loans. We will tailor a finance package to suit your needs. Call today on 1300 889 669 or apply online now.