What business car finance option is right for me?

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Whether you’ve been running a business for decades, are in the early stages of a start-up, or working as a sole trader, it’s highly likely you’ll need a vehicle for business use, personal use, or both. If you’re looking for a vehicle to use predominantly for business, this article is for you.

Common types of finance for business vehicles

In this article, we’ll cover three common options when looking to finance a business vehicle:

  • Chattel mortgage
  • Commercial hire purchase
  • Novated lease.

Each has its own benefits and may suit one person better than another, and you should always speak to a financial advisor and your business accountant to ensure you qualify for any benefits before applying.

Chattel mortgage

A chattel mortgage gives immediate, full ownership of the financed vehicle, which will also act as security on the loan. A business can potentially claim the initial GST amount of the car’s purchase price on their next Business Activity Statement, and claim depreciation from using the vehicle.

Summary of benefits

  • the car is a business asset
  • competitive rates
  • GST & Tax benefits
  • can include a balloon payment – i.e. residual payment
  • can be obtained online with approval as quick as 24 hours.

Who would use it?

A chattel mortgage is particularly popular with tradies and self-employed individuals, and can provide significant advantages over a standard car loan. To learn more about chattel mortgages and how they can work for you, visit this extensive Chattel Mortgage Guide by Money.com.au.

Commercial hire purchase

A commercial hire purchase (or CHP) is similar to a chattel mortgage, except the borrower won’t actually own the vehicle until the end of the agreement. This means you can still potentially claim the benefits of ownership, though the vehicle won’t be listed as an asset, and therefore won’t be protected in the event the business goes bankrupt.

Summary of benefits

  • you will own the asset at the end of the term
  • GST is not charged on the monthly rental or residual payment
  • tax deduction when the vehicle is used for business purposes.

Novated lease

A novated lease is type of car finance which allows you to package a car into your salary. It’s an agreement between an employer, employee, and a leasing company, however can be used in very specific circumstances by business owners looking to finance their own vehicle. It may also include a residual payment, the maximum amount of which is determined by the ATO.

Summary of benefits

  • the vehicle you purchase will not have GST included in the purchase price
  • the leasing company will generally include all running costs for your vehicle in your regular payments
  • repayments are made from your pre-tax income, which can possibly lower your marginal tax rate.

Who can use it?

A novated lease can only be suitable for a business owner in very certain situations. The business owner must be an employee of their own company and must also pay themselves a salary.

Which type of business car finance is for you?

There are several types of business car finance in Australia – not just the three most common listed above – and each has its own pros and cons. Some types of car finance are more suitable for a single business car, while others may be tailored to accommodate a full fleet of business vehicles.

With data showing three of the top five vehicles sold in 2019 were utility vehicles, the right type of business finance could provide a vehicle for business and personal use, along with generous tax or GST benefits.

Brought to you by Oxford Lamoureaux, Senior Content Writer, Money.com.au

Oxford is passionate about helping everyday people get access to accurate information about financial products to help level the playing field. Oxford is also a four-time published author and music journalist.

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