Need a work car? Read this quick and easy guide to commercial vehicle finance options.
FInancing your next work vehicle doesn’t have to be difficult! We’ve collected all of the best information and compiled it into this one easy to read guide – read on to find out more. And if you need any help please feel welcome to send us a message.
What is a vehicle loan and where do they come from?
Car loans are short to medium term loans (often in the range of 1 – 5 years). They are most commonly secured by the vehicle you are purchasing as an asset, though you may be able to get an unsecured loan for a second hand vehicle.
You can usually snag a car loan at your regular borrowing sources – all banks, non-bank lenders, finance specialist companys, car dealers. Plus, you can look for This form of finance is offered by most banks and alternative lenders, as well as specialist finance companies owned by or affiliated with car dealerships. You an also consult an expert finance broke like Equiplend, or even our sibling, Hoolu.
Keep in mind that your loan source will probably effect how much you pay for your loan. Dealers can be more expensive and may attempt to up-sell you at the time of sale. Non-bank lenders may also have higher finance rates, especially if you have bad credit, so it is best to shop around or consult a finance broker.
Work Vehicle Finance options – what are they?
Finance lease – If you want to have the function and use of a vehicle without adding an asset to your balaance sheet, then this option is for you. The lender buys the vehicle, and then you make repayments for the loan term to the lender. Once the loan term is up you have the option of purchasing the vehicle using a baloon payment method, you can also trade the car in or choose to refinance and repay the remaining amount.
Commercial hire purchase – Rent-to-own is a popular method of purchasing a vehicle for many business owners. During the agreed upon loan term you’ll make repayments to continue hiring the car. Once the time period is up you take ownership oas you will have paid off the value of the vehicle and any costs such as interest during the loan period. This is a popular arrangement as you do not have to pass a credit check to rent the car in the first place, as the dealership still technically owns the car.
Chattel mortgage – this option involves you borrowing the money you need to make the purchase of a vehicle. As the owner of the vehicle it belongs to you, but the lender will be responsible for the mortgage on your vehicle. The vehicle is also security for the loan until the loan has been fully repaid, at which point the loan is closed and it is yours.
Novated lease – Under this agreement the lender, employer and employee have an agreement to purchase and finance a vehicle, which is paid for from the employee’s pre-tax income by the employer. This is a great way to gain a slight tax advantage while securing transportation as it lowers your taxable income by deducing your repayments before tax is deducted. There is also the option of covering all expenses of the vehicle, such as maintenance and running costs.
Business loan – any normal business finance can be used to purchase a vehicle outright, such as a short or long term loan, overdraft, line of credit, startup loan or bridge loan.
Choosing your commercial vehicle finance option – what’s right for you?
With so any finance options available to finance your work vehicle it can be hard to choose what suits you best. First, consider these main points, and if you’re not sure ask us –
Once the loan is repaid do you plan to keep the vehicle? Think about whether or not you want to claim the vehicle as an asset and list it on your balance sheet. If not, then you may want to consider one of the finance options where you don’t own the vehicle until the end of the loan term. If it works in your benefit to claim the vehicle as an asset rather then it can add value to your business.
What will you do with the vehicle while you own it? If you’re line of work involves using the vehicle frequently then it is wise to consider a finance option that gives you the option to trade the vehicle in or upgrade at the end of the loan term, such as a finance lease. Keep this in mind if you’re considering replacing the vehicle within the time frame.
Consider your business and it’s situation – is your business situation? Sole traders, companies, partnerships – the finance options available to you you are part of a company or a sole trader will affect the choices you have available. For example, a novated lease is intended for employees to purchase vehicles with the assistance of their companies, so this isn’t an option for sole traders.
What is your financial situation? How healthy is your business and what is your cash flow like? If you have a lot of debt and not a lot of positive cash flow you might want to consider rent-to-own options. Buying a new vehicle can be a costly exercise due to depreciation should you try to sell the vehicle at the end of the loan. However, used vehicles can have high maintenance costs, so everything must be carefully considered. Buying a cheaper vehicle will generally save you money – skip the expensive options unless they are necessary.
How To: Get the most out of your business vehicle finance –
Ask for help if you aren’t sure about what is the best option for you – Knowing where your business is at is the first step to choosing a loan so if you have the option consult a licensed accountant. A good accountant will be able to advise you on which option makes the most sense for your business. They’ll also be able to tell you whether any part of your commercial vehicle finance is tax deductible, which can be a great extra benefit to your business.
Find a lender what will let you negotiate your repayments structure – just because a lender offers a certain repayment structure doesn’t mean you can’t negotiate it. Ask for a time frame that suits you, your business, and it’s cash flow. You can choose from weekly, fortnightly, monthly, qurarterly and even yearly, though most lenders will be aiming for the fortnightly to monthly zone. Be mindful of the lenders reaction to your request too – if they aren’t willing to bend and be accommodating then this may be a red flag that signals difficulty ahead for any future negotiations.
Use the magical 20K tax break to your advantage – All kinds of business owners should take advantage of this one – if you turn over less than a healthy $10,000,000 then you can claim against your tax payments for any vehicle used for work purposes under the value of twenty thousand. Consult your accountant for the best advice.
The faster you pay off your loan the less money it will cost you – this is the tip that lenders hate. The more money you can throw at your loan for the lease period the better. Why? Because the faster you can pay the loan off decreases the amount of time you’ll be paying interest on your borrowed amount. Repayments also lower the outstanding amount you owe which means there’s less of a balance to calculate interest on – see where this is going? As often as you can make those payments.
Compare these key factors before choosing your work vehicle finance –
Terms & Conditions – Think about your budget, financial constraints and borrowing goals in light compared to the kind of vehicle finance you’re looking at. How does this match up with the length of the loan? If you don’t take ownership of the vehicle at the start of the you will need to think ahead and be prepared for any balloon payments required at the end of the loan.
Interest rate and the associated expense – consider what your loan will cost you? Don’t forget the interest costs on top of the borrowed amount. You’ll also need to know whether the interest rate will be fixed or be variable. A fixed rate can offer predictability and security, while a variable rate can either cost you more money if the rate rises, or save you money if it falls – it’s up to you to pick!
Repayment schedule and amount – If the loan option you’re considering doesn’t have a repayment schedule that works for you and your cash flow then keep looking. But if you can make it work and the loan is otherwise worth it then it’s not a deal-breaker.
Tax obligations and requirements – different types of commercial vehicle finance are eligible for different tax deductions. If you aren’t sure ask your accountant or consult government information sources. Examples of this would include a finance lease allowing you to claim against the whole lease, while a chattel mortgage allows you to deduct depreciation of the vehicle as well as interest on the loan.
Don’t forget the fees and charges – As with any financial product, it pays to familiarise yourself with any fees and charges attached to a vehicle finance option. They may not seem like much at first, but these expenses can add up to a lot of money in the long run.
Don ‘t forget about the risks involved with commercial vehicle finance.
You should always be careful when it comes to accepting any kind of finance option. You must always borrow within your means by choosing a finance option that suits your cash flow and enables you to make your repayments on time and reliably. Be sure to purchase within your means by choosing a vehicle that is affordable. You should also consider any changes in your income and how this will effect your ability to make repayments.
You should also be mindful that choosing the right finance for you can be a great benefit or a hinderance. If you aren’t sure then either ask your accountant or consult a licensed finance broker – these opinions are less likely to be biased as opposed to a lender who may just be trying to get you to agree to a loan.
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