What is asset finance?

Asset finance is a term that is often used by banks and leasing companies to describe a product offered to a customer under which the income derived by the bank or lessor (usually described as rent payable or principal and interest due) is used to finance the purchase price of an asset or the cost to the lessor or owner of the asset.

This guidance note defines terms such as asset finance (versus asset-based finance) and residual value. It summarises the following four types of asset finance products most commonly used in Australia:

• • operating leases;
• • finance leases;
• • hire-purchase agreements; and
• • chattel mortgages.

See What is asset finance?

Determining which asset finance product is suitable

By asking questions about the asset and how the customer intends to use it, we can arrive at a decision as to whether an asset finance product is suitable and, if so, which one. Other financial questions can be asked to understand the financial consequences of any finance decision.

This guidance note compares:

• • operating leases;
• • finance leases;
• • hire-purchase agreements; and
• • chattel mortgages.

See Determining which asset finance product is suitable.

Other structured finance products offered in the market

In addition to the four most common types of asset finance products, there exist other niche products. These are:

• • bailment products;
• • structured leases;
• • Islamic finance and Sharia'h compliance; and
• • tax effective leasing.

This guidance note discusses each of these products.

See Other structured finance products offered in the market.