Useful Life refers to the estimated number of years an asset can generate economic value before it becomes worn out, outdated or no longer viable for business use. Lenders use Useful Life to determine maximum loan terms, acceptable asset ages, risk ratings, and residual values. Useful Life is critical in Equipment Finance, Vehicle Finance, and Low Doc Loans. Related glossary terms: Asset Type, Asset Valuation, Residual Value. Relevant blogs: Are Low Doc Equipment Loans Worth It?, Equipment Finance Application Mistakes.

Why Useful Life Matters

Lenders will not finance an asset longer than its remaining Useful Life. If an excavator has 10 years of Useful Life left, lenders may offer a term up to 5–7 years. If a truck only has 3 years left, the maximum term might be 2–3 years. Useful Life impacts:

• Loan term length
• Interest rates
• Approval conditions
• Residual value or balloon amounts
• Eligibility for Low Doc products

Stronger Useful Life = easier approval, better terms.

Typical Useful Life Examples

• New vehicles: 8–12 years
• Light trucks: 10–15 years
• Prime movers: 8–12 years (depending on kms)
• Excavators / Yellow gear: 12–20 years
• Medical equipment: 5–12 years
• IT equipment: 2–5 years
• Hospitality equipment: 5–10 years

Lenders will not finance beyond the asset’s remaining Useful Life.

To see how Useful Life shows up in real approvals and case studies, explore the Tradie Hub, Truckie & Fleet Hub and Business Owners Finance Hub.

Official reference: ato.gov.au