Don't get caught out. Get the right business car loan.
- There are three common types of car loans for business owners
- Each type of car loan offers its own benefits
- By making the right choice now you could save in the future
Did you know: as an Australian business owner, you have a choice in car finance.
Being a business owner means being your own boss. It means autonomy, independence, and never having to contend with the 'higher ups'. In short, it means taking charge.
It also means long hours and late nights, as well as the pressure of knowing that the whole team is counting on your vision and your guidance.
When it comes to being a business owner, there is no shortage of stress, paperwork, and competing interests. Indeed, the make-or-break decisions often come down to your judgement.
So, understandably, finance for the new work vehicle may not be high on your list of priorities. However, it is still important and should be treated as such.
By making an informed decision now, you could save yourself and your business a lot in the years to come.
3 types of business car loans
In Australia, there are three types of business car loans from which business owners regularly choose.
Each offers individual benefits and potential drawbacks.
These three business car loans include:
- Commercial Hire Purchase: Also known as a Corporate Hire Purchase (CHP), a Hire Purchase (HP) or an Offer to Hire, a Commercial Hire Purchase is the most common type of car finance for businesses.
- Chattel Mortgage: Under a Chattel Mortgage, the lender provides the business owner with money to purchase a vehicle. The business owner then provides regular repayments to the lender.
- Finance Lease: With a Finance Lease, the bank or lender purchases the desired vehicle on behalf of the business owner and then rents it back to them in exchange for regular repayments.
Which is right for you and your business will depend on your situation and loan needs.
In the beginning, it's a good idea to consider all three options. However, as you learn more, you may discover that one or another is more suitable for your circumstances.
The difference between business car loans
On the surface, all three options may seem similar. Like many things in business, though, the difference is in the detail. Depending on your situation, those details could make a big difference in the long term.
Key benefits:
| Commercial Hire Purchase | Chattel Mortgage | Finance Lease | |
|---|---|---|---|
|
Flexible repayments |
✓ |
✓ |
✓ |
|
Flexible terms |
✓ |
✓ |
✓ |
|
Most commonly used |
✓ |
|
|
|
Seasonal repayments |
|
✓ |
|
|
Vehicle owned outright |
✓ |
✓ |
|
|
GST excluded |
|
|
✓ |
|
Fixed interest rates |
✓ |
✓ |
✓ |
As you can see, all three loan options share similar features, such as flexible repayments, flexible terms, and fixed interest rates.
However, features such as seasonal repayments or the option to own the vehicle outright are only available with selected loans.
"By making an informed decision now, you could save a lot in the years to come."
How to choose which is right for you
The first step is to do your research.
You need to identify which features you need in a car loan, as well as which car loans offer those features. Here are five questions you should ask during the research phase.
- What is more important: a lower cash deposit or lower monthly repayments?
- How important is loan flexibility?
- Could I benefit from incorporating a residual or 'balloon' payment into my loan?
- Do I need immediate ownership?
- What are the tax implications of this vehicle purchase?
By answering these five questions, you'll start to discover your loan needs. The following step will be to choose a loan that matches your requirements.
Tax implications of business car loans
Tax implications may vary between loan types.
For example, you may be able to claim GST on a Commercial Hire Purchase or Chattel Mortgage. Whereas under a Finance Lease, that may not be possible. This is because, under a Finance Lease, the GST due at the purchase of the car is paid and claimed back by the lender as an Input Tax Credit.
Under a Chattel Mortgage, Goods and Services Tax (GST) is charged on the purchase price of the vehicle. Conversely, GST is not charged on any repayments or final 'balloon' payments. This type of car loan is therefore understandably popular with business owners who have the ability to account for GST.
Note: Consult a tax professional for specific business tax advice.
"Loans may seem similar. Like many things in business, though, the difference is in the detail."
Speak with a loan specialist
Unsure which loan type is right for you and your business? We could help. At Rapid Finance, our team of loan specialists know business loans inside and out.
We'll seek out finance that matches your situation. Whatever your business and industry, we can assist you in finding finance that is right for your circumstances.
For more information, visit our car loans page or call us on 1300 467 274