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Operating Leases vs Financing Leases - The Definitive New Zealand Guide

Our guide explains operating and financing leases and compares and contrasts the key differences and similarities. We outline why you would pick one lease over the other, top facts you need to know and the most frequently asked questions business owners and accountants across New Zealand ask. We also list several trusted financing lease and operating lease companies.
Updated 8 December 2024
Summary:
  • ​Leasing is a common method for individuals and businesses to obtain the use of a particular asset, such as a vehicle or piece of equipment, without the need to purchase it outright.
  • New Zealand has two main types of leases: operating leases and financing leases. Understanding the key differences between these two types of leases is important for anyone considering leasing an asset, as the type of lease chosen can have significant financial and tax implications.
  • If you are looking to compare different leasing options, we suggest the best approach is to obtain quotes and carefully consider each lease's term length, the asset's expected useful life, the ongoing costs and the lease's terms before making a decision. The more options you can compare for a specific vehicle, piece of equipment or machinery, the stronger your ability to negotiate.

Our guide covers:
Important: This guide provides general information only. For specific advice around a finance or operating lease, please speak to an accountant to ensure that your decision is suitable and tax-effective for your business. Our guides to Financing Leases and Operating Leases have more general information. 

Know This: Our guide to business vehicle finance options compares options if you're considering options for a car, truck or van.
Is Your Business Looking for a Loan to Fund an Asset Purchase? Avoid high-interest rates and high fees with our top ​two trusted business lenders:
  • Our business loan research highlighted two leading business lenders that undercut the established competition with fairer interest rates and fees to qualifying business borrowers and a genuine willingness to lend.
  • We suggest contacting Prospa and Bizcap (in that order) to see what interest rate they will offer.
  • Applying takes only a few minutes for each site. There is no obligation to accept any loan offer. However, be aware that the advertised interest rate is not guaranteed, and your credit score may, in some cases, be affected if you routinely apply for loans.
  • The more you compare and enquire (without paying any application fee), the better your chances of finding the best deal. Not all business loans are affordable - make sure you know your options by comparing the market widely.
  • Remember, the interest rate you agree to now makes a huge difference when you repay the loan week after week.
  • Advertising Disclosure: We may receive a commission if you take out a loan, but this does not influence our shortlist or comparison data. Interest rates vary based on each borrower, and assessment times vary.
Christopher Walsh
MoneyHub Founder

Defining Operating and Financing Leases

What is an operating lease?

An operating lease is a loan model where the lessor (the owner of the asset) retains ownership of the asset, and the lessee (the person or business using the asset) has the right to use the asset for a specified period in exchange for regular payments. The lessee has no ownership rights in the asset and is not responsible for maintenance or repair costs. Once the lease term ends, the lessee must return the asset to the lessor.

Operating leases are typically used for assets with a shorter useful life or for assets expected to depreciate significantly over time. Examples of assets commonly leased through operating leases include vehicles, office equipment, and machinery.

More Information: Visit our definitive guide to operating leases which includes key terminology, characteristics, pros and cons and costs. We also cover vehicle leasing in a dedicated guide.

What is a financing lease?

A financing lease, also known as a capital lease, is a type of lease in which the lessor transfers ownership of the asset to the lessee once the lease ends. The lessee makes regular, consistent payments to the lessor over the lease term and, at the end of the term, has the option to purchase the asset for a predetermined price or return it to the lessor.

Financing leases are typically used for assets with a longer useful life or for assets expected to appreciate over time. Examples of assets commonly leased through financing leases include real estate, aircraft, and large manufacturing equipment.

Check out our definitive guide to financing leases (including the key terminology, characteristics, pros and cons). 

What are the Main Similarities and Differences Between Operating Leases and Financing Leases?

​Operating leases and financing leases are common methods for obtaining the use of an asset without purchasing it outright. Still, they have some important differences that can have significant financial and tax implications.

Firstly, the similarities between the two types of leases include:
  • Both leases involve the lessee's use of an asset in exchange for regular payments to the lessor.
  • Both leases also typically require the lessee to pay for insurance and taxes on the asset during the lease term.

Differences include:

1. Ownership of the asset.

​One of the main differences between operating leases and financing leases is asset ownership. In an operating lease, the lessor retains ownership of the asset, and the lessee has no ownership rights. In a financing lease, the lessor transfers ownership of the asset to the lessee at the end of the lease term.

2. Lease term.

​Another difference is the length of the lease term. Operating leases tend to have shorter terms than financing leases, as the assets being leased are expected to have a shorter useful life. On the other hand, financing leases tend to have longer terms as the assets being leased are expected to have a longer useful life.

3. Lease payment structure.

​How the lease payments are structured is also different between operating leases and financing leases. In an operating lease, the payments are typically structured to cover only the lessor's cost of providing the asset to the lessee, plus a profit margin. In a financing lease, the payments are structured to cover the full cost of the asset plus a profit margin.

Why Would You Take Out an Operating Lease Rather than a Financing Lease?

​There are a few key reasons why a business might choose to take out an operating lease rather than a financing lease:

1. Short target lease length.

​One reason is that operating leases tend to have shorter terms than financing leases, which can benefit businesses that expect to upgrade or replace the asset soon. Operating leases also tend to have lower upfront and ongoing costs, as the lessee is not responsible for purchasing the asset.

2. Lower eligibility criteria.

​Another reason to choose an operating lease is that it can be easier to qualify for an operating lease, as the lessee is not required to put up a large down payment or collateral as they would with a financing lease. This flexible eligibility can be especially beneficial for startups or small businesses that may not have a lot of capital available.

3. More flexibility.

​Finally, operating leases can also be more flexible than financing leases. For example, many operating leases allow the lessee to terminate or extend the lease if needed. In contrast, financing leases often have more strict terms that cannot be altered.

Must-Know Facts to Consider When Taking Out Operating and Financing Leases in New Zealand

​There are a few other things to keep in mind when taking out an operating lease or a financing lease in New Zealand to make the right decision for your business needs and cashflow:

1. Consider the lease term's length and the asset's expected useful life.

  • When deciding between an operating lease and a financing lease, it's important to consider the lease's length, the asset's expected useful life, the lease's terms, and the tax implications. If you expect to upgrade or replace the asset soon, an operating lease may be a better option.
  • Operating leases have shorter terms and are typically used for assets with a shorter useful life, such as computers or vehicles.
  • On the other hand, if the asset has a longer useful life and you expect to keep it for a longer period, a financing lease may be a better option.
  • Generally, financing leases have longer terms and are typically used for assets with a longer useful life, such as real estate or machinery.

2. Review the terms of the lease BEFORE committing to it.

  • It's also important to understand the lease terms, including the amount and frequency of the payments, and any early termination or extension provisions. Make sure you fully understand the lease terms before signing anything to ensure that it meets your needs and budget.
  • For example, make sure you know the length of the term, the amount and frequency of the payments, and any early termination or extension provisions. It's also a good idea to have the lease terms reviewed by a qualified professional, such as a lawyer, to ensure that you are fully aware of your rights and obligations.

3. Consider the tax implications of the lease.

  • If the lease is classified as a financing lease for tax purposes, you may be able to claim depreciation and interest as business expenses.
  • This deductibility can be a significant benefit, but it's important to consult with a qualified tax professional or the Inland Revenue Department (IRD) to understand the tax implications of the lease before making a decision.
  • The IRD has published guidance on the tax treatment leases to help explain what is and isn't deductible.

4. Compare and contrast different lease options from different lessors.

  • ​It's a good idea to shop around and compare offers from different lessors to ensure you get the best deal. Take the time to research different options and negotiate the lease terms to get the most favourable terms possible.

5. Make sure to understand the relevant legislation underpinning leases in New Zealand.

  • It's important to be aware of the Consumer Guarantees Act and the Fair Trading Act, which provide protections for lessors and lessees.
  • These laws set out the rights and obligations of the parties in a lease agreement and can help to ensure that the lease is fair and transparent.

6. Keep track of all the relevant documentation for potential inquiries from Inland Revenue (IRD).

  • ​Be sure to keep accurate records of all lease payments and any maintenance or repair work done on the asset during the lease term. These records can be useful for tax purposes and can also help you track the asset's performance.
Is Your Business Looking for a Loan to Fund an Asset Purchase? Avoid high-interest rates and high fees with our top ​two trusted business lenders:
  • Our business loan research highlighted two leading business lenders that undercut the established competition with fairer interest rates and fees to qualifying business borrowers and a genuine willingness to lend.
  • We suggest contacting Prospa and Bizcap (in that order) to see what interest rate they will offer.
  • Applying takes only a few minutes for each site. There is no obligation to accept any loan offer. However, be aware that the advertised interest rate is not guaranteed, and your credit score may, in some cases, be affected if you routinely apply for loans.
  • The more you compare and enquire (without paying any application fee), the better your chances of finding the best deal. Not all business loans are affordable - make sure you know your options by comparing the market widely.
  • Remember, the interest rate you agree to now makes a huge difference when you repay the loan week after week.
  • Advertising Disclosure: We may receive a commission if you take out a loan, but this does not influence our shortlist or comparison data. Interest rates vary based on each borrower, and assessment times vary.
Christopher Walsh
MoneyHub Founder

Frequently Asked Questions

Can I negotiate the terms of an operating or financing lease?

​Yes, it's often possible to negotiate the terms of an operating or financing lease, including the length of the term, the amount and frequency of the payments, and any early termination or extension provisions.

Can I return the asset early in an operating or financing lease?

​It depends on the terms of the lease. Some operating leases allow for early termination, while others do not. Financing leases are generally less flexible and may not allow for early termination.

Can I purchase the asset at the end of an operating lease?

​Generally, no. In an operating lease, the lessee doesn't have any ownership rights in the asset and must return it to the lessor at the end of the lease term (unless a buyout provision is included in the operating lease agreement). In a financing lease, the lessee can likely purchase the asset at the end of the lease term for a predetermined price.

Who's responsible for maintaining and repairing the asset in an operating or financing lease?

​In an operating lease, the lessor is typically responsible for maintaining and repairing the asset during the term of the lease. In a financing lease, the lessee is typically responsible for maintaining and repairing the asset.

Can I claim depreciation on the asset if I have an operating or financing lease?

If the lease is classified as a financing lease for tax purposes, the lessee may be able to claim depreciation on the asset. However, the lessee cannot typically claim depreciation in an operating lease.

Can I claim the interest on the lease payments as a business expense if I have an operating lease or a financing lease?

​If the lease is classified as a financing lease for tax purposes, the lessee may be able to claim the interest on the lease payments as a business expense. However, the lessee cannot typically claim the interest as a business expense in an operating lease.

How does the New Zealand Inland Revenue Department determine whether a lease is classified as an operating lease or a financing lease for tax purposes?

The IRD has specific guidelines for determining whether a lease is classified as a financing or an operating lease for tax purposes. Generally, the IRD will

Do the same laws in New Zealand govern operating leases and financing leases?

​Yes, operating leases and financing leases are governed by the Consumer Guarantees Act (CGA) and the Fair Trading Act (FTA) in New Zealand, which provide protections for lessors and lessees.

Can I negotiate the tax treatment of an operating lease or a financing lease?

It may be possible to negotiate the tax treatment of an operating or financing lease with the lessor. Still, the final determination of the tax treatment of the lease will be made by the IRD based on the specific terms of the lease and the applicable tax laws. Therefore, it's always a good idea to consult with a qualified tax professional or the IRD to understand the tax implications of a lease before entering into it.

Can I finance the purchase of an asset through an operating lease or a financing lease?

Both operating leases and financing leases can be used to finance the use of an asset. However, it’s much more common for financing leases to be used as a way to finance and purchase an asset compared to operating leases. This is because:
  • In a financing lease, the lessee makes regular payments to the lessor over the term of the lease and, at the end of the term, has the option to purchase the asset for a predetermined price or return it to the lessor.
  • In an operating lease, the lessee makes regular payments to the lessor in exchange for the right to use the asset for a specified period but does not have the option to purchase the asset at the end of the lease term.

Can I negotiate the asset's purchase price at the end of a financing lease?

The asset's purchase price at the end of a financing lease is typically predetermined in the terms of the lease agreement. It may be possible to negotiate the purchase price with the lessor, but it's important to carefully review the terms of the lease before entering into it to ensure that you are aware of the final purchase price.

Can I use an operating or financing lease to lease a vehicle?

​Both operating leases and financing leases can be used to lease a vehicle. In an operating lease, the lessor retains ownership of the vehicle, and the lessee has the right to use it for a specified period in exchange for regular payments. In a financing lease, the lessor transfers ownership of the vehicle to the lessee once the lease term ends, and the lessee makes regular payments to the lessor over the lease term.

Our guide to vehicle leasing has more information to help you make an informed decision.

Can I use an operating or financing lease to lease office equipment or machinery?

Operating and financing leases can both be used to lease office equipment or machinery. In an operating lease, the lessor retains ownership of the asset, and the lessee has the right to use it for a specified period in exchange for regular payments. In a financing lease, the lessor transfers ownership of the asset to the lessee at the end of the lease term, and the lessee makes regular payments to the lessor over the lease term.

Popular Operating Lease Companies in New Zealand

​It's important to note that most companies listed below offer to operating and financing lease options. Most of these companies do not disclose their interest rates and terms, as these will vary depending on the type of asset, the duration of the lease and the number of assets being leased.

LeasePlan

LeasePlan is a global leader in vehicle leasing with a strong presence in New Zealand. They offer operating leases for cars, trucks, and other vehicles, and their lease terms range from 12 to 60 months. LeasePlan's operating lease fees are competitive and transparent, and their operating lease interest rates are based on the asset being leased and the length of the lease term. LeasePlan is known for its wide range of leasing options and reliable customer service.

Website: LeasePlan

FleetPartners

FleetPartners is a leading provider of operating leases for vehicles. They offer a range of operating lease terms to suit the needs of their clients, and their operating lease fees are competitive and transparent. FleetPartners is known for its wide range of vehicle leasing options and reliable customer service.

Website: FleetPartners

LeaseDirect

LeaseDirect offers operating leases for various assets, including cars, trucks, machinery, and equipment. They have a variety of operating lease terms available, ranging from 12 to 60 months, and their operating lease fees are competitive and transparent. In addition, LeaseDirect is known for its responsive customer service and easy-to-use online application process.

Website: LeaseDirect

Finance New Zealand

Finance New Zealand is a leading provider of equipment leases, focusing on providing leases for a wide range of assets, including machinery, equipment, and vehicles. Finance New Zealand is known for their wide range of leasing options and reliable customer service.

In addition to equipment leases, Finance New Zealand offers various other financial services, including business loans and vehicle finance. They pride themselves on providing personalised service and tailored financial solutions to help their clients achieve their business goals.

​Website: Finance New Zealand

FlexiGroup

FlexiGroup is a financial services company that offers operating leases for various assets, including cars, trucks, machinery, and equipment. They have a variety of operating lease terms available, ranging from 12 to 60 months, and their operating lease fees are competitive and transparent.

Website: FlexiGroup

Finance HQ

​Finance HQ is a leading asset finance provider focusing on financing a wide range of assets, including machinery, equipment, and vehicles. In addition to asset finance, Finance HQ offers various other financial services, including business loans, vehicle finance and equipment finance.

Website: Finance HQ
Is Your Business Looking for a Loan to Fund an Asset Purchase? Avoid high-interest rates and high fees with our top ​two trusted business lenders:
  • Our business loan research highlighted two leading business lenders that undercut the established competition with fairer interest rates and fees to qualifying business borrowers and a genuine willingness to lend.
  • We suggest contacting Prospa and Bizcap (in that order) to see what interest rate they will offer.
  • Applying takes only a few minutes for each site. There is no obligation to accept any loan offer. However, be aware that the advertised interest rate is not guaranteed, and your credit score may, in some cases, be affected if you routinely apply for loans.
  • The more you compare and enquire (without paying any application fee), the better your chances of finding the best deal. Not all business loans are affordable - make sure you know your options by comparing the market widely.
  • Remember, the interest rate you agree to now makes a huge difference when you repay the loan week after week.
  • Advertising Disclosure: We may receive a commission if you take out a loan, but this does not influence our shortlist or comparison data. Interest rates vary based on each borrower, and assessment times vary.
Christopher Walsh
MoneyHub Founder

Popular Financing Lease Companies in New Zealand

LeasePlan

LeasePlan is a New Zealand-based company that offers financing leases for many assets, including cars, trucks, machinery, and equipment. They have a variety of financing lease terms available, ranging from 12 to 60 months, and their financing lease fees are competitive and transparent.

Website: LeasePlan

FlexiLease

FlexiLease is a leading provider of financing leases in New Zealand, focusing on providing leases for vehicles, machinery, and equipment. They offer a range of financing lease terms to suit the needs of their clients, and their financing lease fees are competitive and transparent. FlexiLease is known for its wide range of leasing options and reliable customer service.

Website: FlexiLease

eLeasing

eLeasing New Zealand is a leading provider of financing leases in New Zealand, focusing on providing leases for vehicles, machinery, and equipment. They offer a range of financing lease terms to suit the needs of their clients, and their financing lease fees are competitive and transparent.

In addition to financing leases, eLeasing New Zealand offers various other financial services, including business loans and equipment finance. They pride themselves on providing personalised service and tailored financial solutions to help their clients achieve their business goals.

Website: eLeasing

Interleasing New Zealand

Interleasing New Zealand is a leading provider of financing leases in New Zealand, focusing on providing leases for vehicles, machinery, and equipment. They offer a range of financing lease terms to suit the needs of their clients, and their financing lease fees are competitive and transparent.

In addition to financing leases, Interleasing New Zealand offers various other financial services, including business loans, equipment finance, and vehicle finance. They pride themselves on providing personalised service and tailored financial solutions to help their clients achieve their business goals.

Website: Interleasing New Zealand

Customfleet

Customfleet New Zealand is a leading provider of equipment leases in New Zealand, focusing on providing leases for a wide range of assets, including machinery, equipment, and vehicles. They offer a range of equipment lease terms to suit the needs of their clients, and their equipment lease fees are competitive and transparent.

In addition to equipment leases, Customfleet New Zealand also offers various other financial services, including business loans, vehicle finance, and fleet management services. They pride themselves on providing personalised service and tailored financial solutions to help their clients achieve their business goals.

Website: Customfleet
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