What is a business car loan?

Find out about your business car finance options.

What is a business car loan?

A business car loan is a type of commercial finance designed specifically to suit the needs of commercial enterprises and employees.

From small businesses to large enterprises, business car loans are available for trucks, equipment, company fleets, and employee cars.

What types of business car loans are there?

The biggest difference between the different types of business car loans is the way that you make a claim for tax deductions.

There are four main types of business car finance:

1. Chattel Mortgages

   A popular type of business car loan, a chattel mortgage allows a business to purchase and take ownership of a vehicle.
   
   Advantages include the ability to claim the GST on the purchase in the first financial year, as well as claiming tax deductions on interest and depreciation. There's also more flexibility in how you make your repayments.
   
   

2. Finance Leasing

   A finance lease gives you the use of a vehicle for a fixed term, at a fixed rate. You can return the vehicle at the end of the lease, or make an offer to purchase it.
   
   Your repayments will usually be tax deductible in full where the vehicle is used 100% for business purposes.
   
   

3. Hire Purchase

   Similar to a finance lease, with the key difference being that at the end of a hire purchase agreement you will own the vehicle.
   
   

4. Novated Leasing

   A novated lease is a three-way agreement between you, your lender and your employer allows you to purchase a car for personal use with pre-tax income.
   
   

5. Line of credit

   Using an existing line of credit to purchase a vehicle means no extra paperwork or application costs, but it's only recommended if the vehicle is going to be used 100% for business reasons.

What are the benefits?

Business car loan interest rates are usually lower than personal car loans. Rather than using your capital as security for the loan, the vehicle itself provides the security.

If the vehicle is an asset of the business, under a chattel mortgage, then your tax benefits are made up of depreciation of the vehicle and the interest charged on your business car loan.

When you lease or rent a vehicle, then the total cost of leasing is tax deductible as long as the vehicle is used for business-related transport.

What do you need to look out for?

Depending on the type of business car loan that you take out, you'll need to make sure that the vehicle is primarily used for business purposes.

If you aren't the business owner, you'll need to speak to your employer about getting a business car loan, as they may need to provide documentation. We recommend you compare business car loans to select the one that will benefit you the most.

Once you understand the features and benefits of each type of business car loan, speak to an accountant and get a quote for some business car loan options from a Positive Lending manager.

How does it stack up next to a regular car loan?

A business car loan comes with lower interest rates than a personal car loan. There's also a range of flexible loan structure and repayment options for business car finance that you won't get with a personal car loan.

Some of the things you will need to consider when selecting your business car loan include:

• Whether you want to pay a cash deposit and get lower monthly repayments
• Flexible repayment options if your cash flow is seasonal
• Choosing a residual or balloon payment
• Immediate ownership of the vehicle
• Tax implications of the loan that you select.

Business car loan application documents

When you apply for a business car loan, you will need to have your recent business tax returns to demonstrate the income of the business. If you're planning to apply for a business car loan make sure you've got your most recent BAS statement, and you might also need a profit and loss statement from your accountant too.

If you do purchase a vehicle using a line of credit, you want to ensure that it's used 100% for business. If the car is used, for example, 20% of the time for personal use, then 20% of the line of credit will be private debt and 80% will be business debt. It's not best practice to mix personal and business debts.

Who does it suit?

A business car loan suits anyone who uses their vehicle primarily for work purposes.

This might mean that you drive to meet clients throughout the day or travel to worksites with your tools and workmates.

If you're an employee rather than a business owner, speak to your employer about your business car finance options, as they will need to provide some of the paperwork for your car loan. Employees are most likely to consider a novated lease, though there could be other business car finance options available too.

When you choose a business car loan, you will need to consider which features are most important for your business car finance needs. Speaking to a business car finance specialist will ensure you choose the most beneficial business car loan.