Finding a car loan to suit your business can be tough. You’ve got a budget, you’ve got requirements, and you’ve got a limited amount of time to do research.
We get it, and we’re here to help.
There are four different types of car loans available for businesses looking to finance commercial vehicles. Each of these types of business car loans has its own unique benefits, and are suited to different sets of requirements. Deciding on the best car loan for your business can be as simple as weighing your requirements against the different benefits of the four types of business car loans listed below.
Car Loans for Businesses who can Account for GST
If you are a business who is able to account for your GST on either a cash or accruals basis, then a Commercial Hire Purchase (CHP) could be worth considering when looking to finance a commercial vehicle. Under a CHP – also known as a Hire Purchase or an Offer to Hire – a financial lender agrees to purchase the GST-inclusive amount of a vehicle on behalf of their client, and to hire it back to them over a set period of time.
The benefits of Commercial Hire Purchases include:
- Flexible loan terms (1-5 years)
- Fixed interest rates
- Flexible repayments options including an option to place a residual value on the loan contract
- Finance secured against the vehicle, allowing for lower interest rates
- Ability to finance loan & vehicle protection
- Ownership of vehicle as soon as debts are paid
For businesses who are able to account for their GST on either a cash or accruals basis, a CHP may have several tax benefits. Due to the business’s ‘intent to purchase’ any GST connected to their chosen vehicle, it's possible that depreciation on the asset and any interest components of the loan may be claimed as a tax deduction. However, Rapid Finance cannot give advice on taxation matters. Borrowers are advised to seek their own tax advice from a taxation expert.
Read more about Commercial Hire Purchases.
Car Loans for Businesses who Need Flexible Payment Options
For businesses that need flexible repayment options, a Chattel Mortgage could be worth considering to finance your commercial vehicle. Under a Chattel Mortgage, the customer takes ownership of the vehicle from the beginning of the agreement with their lender. As such, the lender must invoice the client for payment of the asset, giving the customer a great deal of flexibility when it comes to how and when they want to make repayments.
Rather than being limited to monthly instalments, businesses funding their vehicle through a Chattel Mortgage may choose from a range of flexible repayment structures according to what best suits their cash flow. Some of the options include:
- Seasonal repayments
- Having a GST refund entitlement (if applicable) paid into the loan to reduce monthly instalments and interest charges
- Using deposits or trade-ins to reduce the total amount
- Incorporating a ‘balloon payment’ (a lump sum paid at either the beginning or the end of the loan term)
Read more about Chattel Mortgages.
Car Loans for Businesses who Need Quality or Luxury Cars
A Finance Lease – also known as a ‘Car Lease’ – could be a good car loan option for businesses that are looking to fund luxury vehicles or the most up-to-date models. They are especially beneficial for businesses who want to purchase luxury vehicles without large amounts of capital expenditure.
However, if you choose to take out a Finance Lease on a vehicle that exceeds the Luxury Car Tax Threshold, you will need to acknowledge that, for tax purposes, you are deemed to ‘own’ the vehicle (even though ownership of the vehicle will not pass to you until after all repayments plus interest have been made).
Some of the other benefits of Finance Leases include:
- Flexible contract terms (1-5 years)
- Fixed interest rates & monthly lease rentals
- Costs known in advance
- Residual value can be applied to lower monthly repayments
- Tax deductions available if vehicle used to generate income
- Pay for the GST-exclusive vehicle price
Read more about Finance Leases.
Car Loans for Employees with Salary Packaging
If you are a business employee who is looking to finance a vehicle through a remuneration package, it may be that Novated Lease will be the best loan for you. This type of car loan is a three-way agreement between an employee (the client), their employer and a lender. Under this agreement, the employer will agree to finance a vehicle of the employee’s choice through ‘salary sacrificing’ – meaning payments are made from the employee’s overall remuneration package. The employee may also opt to finance some or all of the running costs of the vehicle.
Since payments are made from the client’s pre-tax salary, a Novated Lease can have significant tax benefits. Additionally, if the employee changes jobs for any reason during the term of the agreement, the loan can be ‘re-novated’ to another employer. The client may also opt to begin making direct payments themselves.
There are also a number of benefits of Novated Leases for employers, including:
- No residual risk
- No excess vehicles if employees leave
- An enticing remuneration package to help attract the employees you want
- Reduced admin time/costs
- Reduced on-costs such as PayRoll tax & WorkCover premiums
Read more about Novated Leases.
No matter your business requirements – be they flexibility, quality, salary packaging or tax deductible loans – there is a business car loan for you.
Though the research can be a bit tedious, hopefully this guide to business car loans has helped you to understand what’s available out there.