There are many types of car loans out there, and it is often a hard task for consumers to even differentiate between them – let alone choose one.
To take some of the hard work out of your searching, we have provided a guide to Commercial Hire Purchases in language you can understand. Below, we have laid out the As and Bs of this type of car finance, to help you better understand them and to determine whether or not they are suitable for you.
Commercial Hire Purchase, Explained
A Commercial Hire Purchase (CHP) – also known as a Hire Purchase or an Offer to Hire – is a common type of fixed rate car loan for businesses. As part of a CHP, a financial lender will agree to purchase the GST-inclusive amount of a vehicle, which will then be lent back to their client over a pre-determined period of time.
During the loan term of a CHP, the customer has use of the vehicle without being the legal owner. Once all vehicle repayments have been made including interest, the customer gains ownership of the vehicle.
Who is a Commercial Hire Purchase Suitable For?
Since the term charges and any loan fees attached to a Commercial Hire Purchase qualify as ‘taxable supply,’ they are subject to GST.
What this means for you, the consumer, is that if your business does not account for GST payments on either a cash or accruals basis, then a Commercial Hire Purchase is probably not the best car loan option for you.
One the other hand, if you do account for your GST on a cash or accruals basis, a CHP could be a beneficial option. Due to your business’s ‘intent to purchase’ any GST, the loan may be able to be claimed as a tax deduction.