There are numerous ways to get business vehicle finance. These include a lease, chattel mortgage, line of credit, or another loan such as a personal loan.
Business vehicle finance can be accessed by both companies and individuals. This is as long as the car is predominantly used for business purposes.
In our experience, we sometimes find that our clients are confused about what type of business car loan to get. Each type of finance has pros and cons and the best type for your business will depend on things like your business structure, cash-flow needs, GST and tax considerations.
In general, most of the finance options provide:
- Flexible contract terms – usually ranging from 1 to 5 years.
- Fixed interest rate and repayments for the contract term – meaning your costs are known
- Ability to add a residual payment at the end of the contract to lower monthly repayments
- Tax deductions for business vehicles
The way tax deductions are claimed for business vehicles differs between the forms of finance and a business’s own accounting method. You should seek independent accounting advice to discuss how this applies to your situation.
Here is an overview of the common types of business vehicle finance that you may consider.
Chattel Mortgage
Under a chattel mortgage the finance provider forwards funds to the vehicle supplier on behalf of the borrower to buy the vehicle. The borrower takes ownership of the car when it’s purchased. The finance provider takes a mortgage over the vehicle to secure the loan.
Features
- Provides flexibility – options to finance the total price of the car, or with a deposit or trade in or with a residual
- The vehicle is owned by the borrower
- No GST on monthly repayments or residual
- Depreciation may be claimed
- Businesses registered for GST may claim input credit on the purchase price
Finance Lease
Under a lease the finance provider (lessor) owns the vehicle and grants a lease under an agreement to the lessee. The lessee gets the benefit of the use of the vehicle car and pays regular payments to the lessor.
In the lease arrangement, the lessee has full use of vehicle and responsibility for its maintenance. At the end of the lease the lessee can either return the vehicle, pay the residual amount on the lease and take ownership, trade it in or refinance the residual and continue the lease.
Features
- Immediate access to the vehicle with no/little financial outlay
- Vehicle is owned by the finance provider
- The residual amount allows for lower monthly repayments
- The amount financed is exclusive of GST which lowers monthly payments (the GST in the car’s purchase price is claimed by the finance provider)
- Lease payments are generally tax deductible
Final Thoughts
Speak with your finance broker to get the ball rolling in determining which finance structure is right for you and to ensure you get the best deal from the right finance provider for your next business vehicle.