Business car finance is a fantastic way to fund the purchase of the vehicles you need to run your business. Just like other equipment and commercial assets, vehicles are used by all types of companies to deliver goods and services to your customers. Whether it’s a car, truck or ute, they are typically expensive and require a significant upfront capital outlay. Most businesses won’t be able to budget for this substantial cash outflow, especially at a time when the future is looking relatively uncertain.
When it comes to purchasing a vehicle (or an entire fleet) for your workforce, leveraging finance to do so makes a lot of sense from a cash flow perspective. There is also a range of other benefits, depending on which car finance option you choose. Let’s take a look at the key considerations you should make when selecting and applying for a business car loan.
Business car finance options
There are four main car finance products on the market designed for businesses:
- Chattel mortgage. A lender will provide you with the money you need to buy the car. Under this product, you take instant ownership of the vehicle, which acts as security for the loan. When the mortgage is repaid, you retain ownership, and there is no more to do.
- Novated lease. This common option allows your employees to lease a vehicle using their pre-tax income. The advantage of a novated lease is that the repayments are taken from your employee’s salary before they get paid. This will reduce their taxable income and save them money.
- Finance lease. These leases provide your business to use of a vehicle, without taking ownership. Essentially, the lender buys the commercial vehicle for you, then leases it back. When the lease term is over, and your repayments are finished, you can choose to pay off the residual value and take ownership, refinance the lease, or swap the car for another option.
- Commercial hire purchase. Hire the vehicle from the lender for an agreed period – they retain ownership. After making the necessary repayments throughout the term, you are then transferred ownership of the commercial vehicle.
How to decide which type is best for you
With multiple options at your disposal, it can be challenging to ascertain which option is best for your business, particularly when car loan terms often run for many years. First of all, narrow down which products are available to you. For example, novated leases are only accessible by employees. If you are a sole trader or a partnership, you may not be able to access this type of lease.
“Establish how much you expect to use the vehicle and whether you would want to claim ownership.”
Secondly, establish how much you expect to use the vehicle and whether you would want to retain or claim ownership at the end of the lease. If you think the vehicle will be driven a lot, you’ll want to choose a product that lets you upgrade your car either throughout the loan term or at the end of it, such as a finance lease. If you’re set on owning the commercial vehicle and want it on your books, a chattel mortgage may be a better bet.
Budget your repayments
Once you know the details of the deal, you can begin to budget your potential car finance repayments. With fix-rate finance and an agreed residual value, it’s straightforward to calculate your monthly repayments. Using our car loan calculator, it’s easy to quickly get an idea if your deal makes sense:
- Purchase price of the vehicle. The more you finance, the higher your repayments will be.
- Term of the loan. Car finance is usually spread over a few years. Just like most other loans, the longer your term, the smaller your regular payment will be.
- Residual value. This refers to the value of the asset after the lease period has ended. Talk to your lender or broker to get the best idea for your particular make and model.
- Interest rate per annum %. Interest is charged on all loans – the lower the interest rate, the less you’ll owe.
Use the resulting estimate to assess if the terms of the car loan make sense for your business’s situation.
Understand the tax implications
There are many tax advantages to commercial vehicle finance. Consult your accountant for specific details relating to your circumstances. Generally, you’ll be eligible to claim tax credits on GST, depreciation costs, input taxes as well as the interest and other lease charges. You might also be able to take advantage of the instant asset write-off under certain circumstances, so make sure to be diligent when it comes to tax advice.
Take advantage of a business vehicle finance broker
Experienced business vehicle finance brokers are the experts in your corner. They will consult their panel of lenders to help you identify the right option for your business. Brokers will represent your situation favourably and help you negotiate and secure the best deals. Excellent business vehicle brokers are available when you need them, ensuring the process of acquiring your new car, truck or commercial fleet is a smooth process from start to finish.
Capital Plus Finance is an experienced business car finance broker that has your best interests at heart. The team at Capital Plus Finance will do everything we can to help you secure a suitable finance solution for your small business. Please give us a call anytime to find out more or to have an obligation-free chat about your business’s funding situation.