Financing a car through a business

Financing a car through a business

There are a number of Australian lenders and car dealers that offer multiple small business vehicle financing options. Generally, business car loans are available with flexible options and can also provide tax benefits.

Business car loans

Applying for a car loan in a business name is simple and may be done online. You will have to provide income and trading history of your business, which allows the lenders to determine your eligibility for small business car finance. You may repay the borrowed amount through periodic instalments over an agreed period. Alternatively, you may opt for smaller repayments initially and a lump sum payment at the end of the loan duration. You may claim interest as a tax deduction as long as the car is used for business purposes.

Chattel mortgages

Chattel mortgages are secured car loans for business use that are repaid over a fixed term. The car is used as security, which means you cannot sell it before the end of the contract. Some lenders may allow repayment based on the cash flows of your business while others may offer fixed equal instalments payable over the loan duration.

Commercial hire purchase

This is similar to financing a vehicle through a business car loan, which is repaid in fixed instalments. The lender will purchase the car and hire it back to your business until the borrowed amount is repaid. However, you will need to pay a certain upfront deposit. Once all the instalments are paid, the car ownership is transferred in your name.

Finance lease

The financing company buys the vehicle and leases it to you for a fixed period. At the end of the lease term, you can pay the residual value and assume ownership, refinance the lease, or trade the car. While financing a car for business use with this option, the payment is fixed and is not affected by inflation.

Operating lease

Unlike the finance lease that allows you to take ownership of the car by paying the residual value, the lender will take back the vehicle at the end of the operating lease term. Generally, operating and maintenance costs are included in the lease amount, which may make it slightly more expensive but is generally more convenient for financing a car through your business.

Novated lease

This is a tripartite agreement that allows your employees to buy a car using their pre-tax incomes. The employer arranges for the repayment to be deducted from the employees’ salaries, which decreases their taxable incomes.

How to decide on the best business car loan?

With several options to finance a business vehicle, ask yourself some questions, like whether you want to retain ownership, what the primary use of the car is, and what the situation of your business is. For example, if you want to retain ownership, a finance lease is not the right option. Similarly, novated lease is available only to employees and if you are a sole trader, financing a car through a business with this option is not an option.

Considering the tax implications is also important as the deductions vary for every option. A chattel mortgage allows depreciation and interest as tax deductions, while you may be able to claim the entire amount if you opt for a finance lease.

Understand the business car loan requirements before applying to ensure a quick and seamless process. Finally, don’t forget to compare various car loan options to find the best way to finance a car through a business.

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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Learn more about car loans

What is a commercial hire purchase?

A commercial hire purchase, or CHP, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. Once the final payment is made, you take ownership of the car. 

What is a CHP?

A CHP, or commercial hire purchase, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. Once the final payment is made, you take ownership of the car. 

What is a car lease?

A car lease, also known as an asset lease or finance lease, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. At the end of the lease, you can either buy the car or hand it back. 

What do I need to apply for a chattel mortgage?

Chattel mortgages are a form of secured car loan for businesses. The lender will set up a mortgage, while you take the car’s ownership. When the mortgage is paid off, you own the car. The borrowed amount is repaid through regular installments over a fixed period of time.

To qualify, you’ll have to meet the following chattel mortgage requirements:

  • The car should be used for business purposes at least 51 per cent of the time.
  • You must hold a valid Australian Business Number (ABN).
  • You must show you can service the loan on time
  • Identity proof
  • Financial records, such as profit and loss account and balance sheet
  • Details of the vehicle you want to buy
  • Bank statement for your business

What is a finance lease?

A finance lease, also known as an asset lease or car lease, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. At the end of the lease, you can either buy the car or hand it back. 

What is an asset lease?

An asset lease, also known as a finance lease or car lease, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. At the end of the lease, you can either buy the car or hand it back.

How to get a chattel mortgage?

Both businesses and individuals may use a chattel mortgage, provided that the car is being used predominantly for business purposes. 

To apply for a chattel mortgage, you need to first consider your options and choose a suitable lender that meets your requirements. Once you have selected a lender, you can apply for the loan online by filling out a form. If the lender doesn’t offer an online application process, you can either call them or visit their nearest branch. 

After you’ve applied, the lender will ask you to supply documents that confirm your identification, income, job profile, etc. If everything is in order, most lenders will arrange the loan’s settlement, so all you need to do is pick up your car!

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

Can I buy a car as a student?

Buying a car is a huge financial decision, and shy of marriage and purchasing a house (or perhaps around the world travels), it may be the biggest financial decision you make. But if you’re looking at your empty pockets, don’t despair! Your dream of owning your own car could become a reality, if you look for and compare the right car loans for your circumstances.

What is a car loan?

A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.

How do you get a car loan?

There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.

Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.

How much is your car worth?

If you already own a car, you could potentially bring down the cost by selling your car in the process. Before that happens, though, you’ll need to find out how much your car is worth.

One of the first places to find this value is to research the value of your current car, giving you an idea of roughly how much it’s worth in its peak condition.

There are plenty of websites that offer a free online valuation, allowing you to enter your car’s make, model, year, badge and description, with results listing a price guide based on both selling your car privately and through a dealership.

Of course, dealerships will try to profit on your trade-in by buying it for less than they can sell it, making it highly unlikely that you’ll get the same price selling a car to a dealer as you would selling a car privately.

However, private car sales can be costly and can take months to sell, making car trading more convenient with a guaranteed return, even if you may not be able to realise the total value of your car’s worth.

Remember that everything is negotiable. If the dealership is offering you less for your trade than you wanted, try to negotiate elsewhere to gain that money back. Start by negotiating on the price of the trade and then ask them if they can give you a further discount on your new car.

What is an operating lease?

An operating lease is an arrangement by which a company leases a car from a vehicle fleet supplier for a set period. It’s a bit like a long-term car rental in that the company gains access to the car but the supplier retains ownership. Companies like operating leases because they are tax-deductible and because they save the company from having to make a large upfront payment to buy a car.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.