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Business car loans in Australia – Drive your growth forward
The road to upgrading your business never seems to end. Since business vehicles are also part of the cog-wheel that drives your grind, you’ll likely need a new set of wheels now and then. If the time is now, you may also need some extra funds before you make the addition.
Ultimately, you’ll need to choose the best business finance solution based on your goals and circumstances. Learn more about this and find out how to fast-track a hassle-free upgrade in this business car loans guide.
What’s a business car loan, and how do they work?
In Australia, business car loans act as financial back-ups for businesses who need to purchase or lease a vehicle while keeping their cash flow neutral. That means you can drive a brand-new set of wheels or own an impressive fleet without meeting any outright costs. However, before you navigate the business car finance space or manoeuvre the best deal, you’ll need to figure out the essentials involved.
To jumpstart the process, use the following questions to get an up-close look at how business car loans work in Australia:
Do business car loans have any tax benefits?
Yes, compared to standard car loans, business car loans often deliver tax benefits that add to a company’s savings. For instance, you can claim a tax deduction on your lease payments, interest, GST as well as depreciation.
Who uses business car finance?
A business car loan is a specialised product that’s on the shelf for a large assortment of businesses. This includes anything from florists and electricians to locksmiths and real estate agents. But, before you can avail yourself of this product, you’ll need to ensure the vehicle is running errands for your business at least 51% of the time.
What type of vehicle can I purchase?
Notwithstanding the trade you specialise in, a business car loan can deliver the right car to cater for your operations. For instance, whether it’s one set of wheels or an entire fleet, you can sign up to buy or lease:
Your options even spread out to cover new or used vehicles depending on the lender’s limits.
How much can I borrow?
Business car loan amounts are typically centred around a $5,000 minimum and a $100,000 maximum. However, the maximum cap can always shift to accommodate larger purchases. That being said, you can borrow up to 100% of your vehicle’s purchase price. Also, depending on the loan product, you can top up this amount to cover other related expenses like insurance and registration.
What’s the payback period?
Terms can expire in as little as 12 months or stretch up to 10 years. Generally, a short time frame will cut off your interest payments quickly, which means more savings for the business. On the other hand, longer terms ensure your cash flow remains as neutral as possible throughout the repayment process.
What’s the interest rate?
The interest rate that’s pinned on your vehicle depends on its age and type. For brand-new and smaller vehicles, business car loan rates can be as low as 5%. But, the assigned rate scales up as we move towards trucks, trailers and similar vehicles with a bit more mileage.
How much in fees do I pay?
Taking a particular finance product under your business’s belt also adds extra costs in terms of loan fees and charges. The exact amount you’ll have to deduct from your coffers varies wildly based on the car’s age, value, plus the lender’s profit model. Across the board, here’s what you’ll have to pay:
- Establishment fee
- Ongoing fee for monthly account keeping
- Late payment fee
- Early termination fee
What will my monthly car loan repayments be?
Get a handle on your repayments using our business car loan calculator. This key tool estimates how much debt your business can carry. Keep in mind that the size of your instalments depends on the underlying amount and term. At the end of each working day, it’s essential to have flexible weekly, fortnightly, or monthly repayments that mesh well with your cash flow plan.
Do I put up a deposit?
Deposits are usually not part of the requirements. But if your cash flow can take the hit, you can put up a deposit that’s worth as much as 30%. Compared to a 0% deposit loan, you’ll end up with more affordable repayments and cheaper costs overall.
Should I opt for a balloon payment?
A balloon payment/residual value is when a split portion of your loan (up to 40 or 50%) gets shuffled back to the end of the loan term. This allows you to focus on repaying the remaining amount through much smaller instalments. Once the repayment period ends, you can pay off the balloon payment, refinance, or trade in the vehicle.
Where can I get business car finance?
If you want to leverage the growth of your trade via car finance, you can use comparison websites like BestFind. These are an easy starting point since you can roll out a quick and effective search using a product table. Here, you’ll be able to explore and compare car loans from different Australian lenders.
Additionally, you can apply a filter which allows you to move in on the right option sooner. It’s also important to consider other factors like interest rate, repayment flexibility, and unique advantages during your mission. Doing this gets you on the road to tailored finance that suits your short term or long term business needs.
5 Common types of business car loans
- Chattel mortgage. The lender puts out funds that enable you to take immediate and full ownership of the vehicle. However, the lender also takes out a mortgage on the car and holds it while you repay. That means you won’t be able to sell the car until you honour the finance arrangement in full.
- Operating lease. This is a flexible arrangement where the finance provider buys the vehicle then turns around and rents it to you. When the lease ends there’s no transfer of ownership, but you can upgrade or renew the contract.
- Finance lease. Similar to an operating lease but you’ll have a longer line up of options. These include renewing the contract, trading the vehicle in or settling the residual value on the lease so ownership rights can switch to you.
- Commercial hire purchase. You hire the vehicle from the credit provider for a fixed period. You’ll then be able to step into the role of ‘owner’ once you make good on your repayments.
- Novated lease. Employees can also finance a vehicle purchase using pre-tax income as a source for the repayments. In this lease arrangement, employers act as the middlemen and are responsible for making sure the lender gets what’s due to them.
Other types of business car loans
- Car loans. A business can also count on a standard or regular car loan, though these aren’t specialised, and neither do they offer any tax returns.
- Business loans. With this flexible finance option, the funds won’t be limited to vehicle purchases only, but they can also cover other business purposes. Typically, it’s an unsecured car loan meaning the lender doesn’t have a say over what you do with the vehicle.
- Low doc car loans. Coming up with the full complement of required documents isn’t always feasible during an application. Low doc business car loans are simply minimal-paperwork deals that make life easier if you own a small business or are self-employed. But, keep in mind they don’t always have favourable charges.
- Bad credit loans. You can still get a business car loan with a bad credit score. Still, you should expect higher rates as soon as credit providers realise the risk.
- Lines of credit. This is a multi-purpose finance option, much like a credit card or an overdraft. Your business will be able to withdraw small amounts or lump sums until it reaches a maximum borrowing limit. To get more credit, you’ll have to enter a cycle of withdrawing, repaying, and redrawing.
Buying vs leasing – 3 questions to ask
Before you can begin to narrow down the considerable number of available options, it’s important to pick a side when it comes to buying or leasing. Weigh the following questions to determine which option to play for:
- What will you use the vehicle for? – Hard use means the car sometimes depreciates faster than you can pay it off if you choose a longer term. In that case, it’s best to go with a renewable lease that offers upgrades at the end of each term.
- Do you want the purchase on your balance sheet? – Consider only comparing options that grant full ownership if claiming the vehicle as a business asset is important.
- What sort of tax benefits do you want? – If you’re not sure, try sitting down with an accountant. A professional can easily steer you towards the best tax-deductible financial product.
How to apply
Typically, you can carry out a quick and easy online application on your chosen lender’s website. To get started, simply click the ‘Go to Site’ button in the comparison table above. Here’s a list of documents and information you might need to share before the application pushes through:
- Proof of identity
- ABN or GST registration
- Business bank statements
- Profit and loss statements
- Balance sheets
- Rental notices or agreements
- Details of the vehicle you want to buy
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