Operating lease
An operating lease: use it, then hand it back.
Rent the equipment for a fixed term. Suits a business with equipment that dates quickly and needs upgrading.
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No credit file impact · No cost to compare · No obligation
Operating lease at a glance
- Amount
- $5,000 to $2,000,000 asset value
- Term
- 1 to 5 years, fixed
- Security
- The equipment itself; some lessors add a director’s guarantee
- Time to funds
- Varies by lender
- How you pay
- A fixed monthly rental, with no ownership
Indicative, and subject to lender assessment. Your options are typically ready within 24 hours of receiving your documents.
Is it right for you?
When an operating lease fits, and when it doesn’t.
Often fits
- Assets that lose value or date quickly
- IT, vehicles and fleet, office, medical and point-of-sale equipment
- You want to upgrade at the end of the term
- You’d rather the lessor carry the residual risk
Usually not
- Assets you want to own, where a chattel mortgage or finance lease may fit
- Keeping a longer lease off your balance sheet: AASB 16 now brings most leases on
Business funding, compared on real data, in three steps.
How It WorksCompared
Rent it, or own it?
| Operating lease | Finance lease or chattel mortgage | |
|---|---|---|
| Ownership at end of term | None. Return, upgrade, or buy at fair market value | You own the asset, or pay a residual to own it |
| Balance sheet | Can sit off balance sheet under AASB 16 exemptions | Recognised as an asset and liability on your balance sheet |
| Residual risk | Carried by the lessor, not your business | Carried by you, the borrower |
| Monthly payment | Lower, since you’re only paying for use of the asset | Higher, since payments build toward ownership |
What it costs
How you pay, and what it costs.
- Rental
- Fixed monthly, for use of the asset
- Rate
- Shown for each option in your report, with the APR beside it
- End of term
- Return, upgrade, or buy at fair market value
- Residual risk
- Carried by the lessor, not your business
Rental calculator
See what renting the asset actually costs.
You don’t own the equipment during the term, so there’s no loan to pay off and no residual (the lump sum some leases leave owing at the end) to settle. Adjust the slider for an indicative monthly rental and the total over three years.
- Rates shown are simple p.a.; your report shows the APR.
- Results are approximate and exclude lender fees. Not an offer of credit.
- Monthly rental
- $6,267/mo
- Total rentals over 3 years
- $225,622
Illustrative only, based on an indicative 8% p.a. over a 3-year term, before any residual value or fees. This is a rental estimate, not a loan repayment: the business doesn’t own the asset during the term. Your Compare Report shows the exact rate each lessor offers for your asset type and term.
Questions about operating leases.
What is the difference between an operating lease and a finance lease?
The fundamental difference is ownership intent. With an operating lease, you use the equipment for a set term and then return it, upgrade, or purchase at fair market value: there is no automatic transfer of ownership. With a finance lease, the intention from the outset is for you to own the asset at the end of the term by paying a residual. Operating leases typically have lower monthly payments because you’re only paying for the use of the asset, not its full value.
How does AASB 16 affect operating leases?
AASB 16 changed the accounting treatment for operating leases for many businesses. Under the previous standard, operating leases sat off balance sheet, with only the lease payments appearing as an expense. Under AASB 16, most leases must now be recognised on the balance sheet as a right-of-use asset and a corresponding lease liability, though exemptions exist for short-term leases of 12 months or less and low-value assets, and it may not apply to entities that don’t prepare general purpose financial statements. Speak with your accountant about how it applies to you.
What types of assets are best suited to an operating lease?
Operating leases suit assets that depreciate quickly or become obsolete, where you want to upgrade regularly. Common examples include IT equipment, vehicles and fleet, office equipment, medical equipment, and point-of-sale systems. The key criteria: the asset loses value quickly, you don’t need long-term ownership, and you want the flexibility to move to newer equipment at the end of the term.
What happens at the end of an operating lease?
You typically have three options: return the asset to the lessor, which is the most common choice for technology assets; upgrade to new equipment and start a fresh lease; or, with some agreements, purchase the asset at its fair market value rather than a nominal residual. The options available depend on your specific lease agreement.
How do we get paid?
Comparing costs you nothing. Not comparing can cost you plenty.
The headline rate rarely tells the whole story. Fees, charges and loan terms can add far more to what you repay. That’s why your Compare Report shows every cost we can identify side by side.
In most cases, the lender pays us, and only if you decide to proceed with their product offer. For more complex deals, or where the lender pays us little or nothing, we may charge a fee for our service. It doesn’t happen often, but when it does, it’s shown on your Compare Report and we’ll walk you through it before you decide.
No obligation to proceed, ever.
Related
Read more, or compare a different product.
Guides
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Or talk to us: 1300 161 641 · support@tradefunding.com.au