With a Lease Agreement, the Financier purchases the goods and retains ownership.
You agree to use these goods for a period of time, and to pay a Residual Value upon completion of the time period with a view towards gaining ownership.
Upon completion of the contract, you will have the option to:
- Pay the residual value and take ownership
- Hand the goods back to the financier for their sale keeping in mind that you will be liable for any shortfall
- Re–finance the due residual value for another term
Because the contract requires 100% finance, you can't have any equity in the goods so you can't reduce the amount being borrowed by making a deposit.
The Residual Value is set in accordance with guidelines issued by the Tax Office and is based on an estimated value of the goods upon completion of the lease term.
For accounting purposes, you claim the payments as an expense through your Profit & Loss Statements.