For many years now car dealers have been selling finance lease to private clients primarily because it makes the monthly payments cheaper.
The reason for this is that the interest calculation takes place excluding GST therefore creating a lower monthly payment than the traditional Hire Purchase.
The need to review these practices has been brought forward by the anticipated increase in GST; this has been compounded by the pending introduction of the “Financial Advisors Act (FAA)”.
Many Finance Brokers/Providers believe that the Finance Lease Agreements should only be available to Lessees who have the facility to expense their rentals for business use, or are GST registered and only then if the asset is being used for business or investment purposes.
The advice I have received indicates that the government may apply the new GST rate to pre‐existing contracts from the date the new GST rate applies.
This means that the monthly payments will increase, which is fine for a GST registered entity that is able to claim the GST Credit whereas a Non‐GST registered person (unless able to claim rental expenses for the business use) will have to bear the additional cost.
One of the aims of the FAA is to ensure that the correct advice and/or finance product (including all credit products) is recommended to a consumer.
We at Bespoke Money believe that the process for Car Loans/Asset finance whether Hire Purchase, Finance Lease or Operational Lease should be a collaborative one. It begins with a client and qualification to build a picture of the business requirements then proceeds to gain an in-depth understanding of the client’s background along with aspirations.
Reviewing the clients requirements will ensure that the correct car loan products whether Hire Purchase, Finance Lease, Operational Lease, Insurance or Warranty are packaged in a way that reduces the possibility of any misunderstanding.