Find out how to get the most out of your business vehicle finance.
If you need to buy a car that's going to be used for business purposes, whether you're part of a company or operating as a sole trader, you have a range of financing options available. As opposed to loans that can help you purchase a vehicle for personal use, business vehicle loans can have tax benefits and lease options.
Find out what business car finance options are available in this guide to see what's right for you.
Expert overview: The 3 most important things to know about financing for a business vehicle
- There are a number of options to consider – chattel mortgages, fleet financing and unsecured business loans.
- You might want to chat with your accountant before you apply.
- Don’t forget to take advantage of the $20,000 instant tax deduction if you are eligible.
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Business car loans you can compare
Compare popular business vehicle finance options
- Bigstone Small Business Loan: Borrow up to $1,000,000 for 6 to 36 months. Suitable for purchasing a range of assets including business vehicles.
- GetCapital: Borrow up to$500,000 for 3 to 12 months.
- Max Funding Business Loan: Borrow up to $300,000 for 1 to 36 months. Receive funds on the same day. Suitable for financing a business vehicle.
- Business Fuel: Borrow up to $250,000 for 3 months to 1 year. Invest in your business with a quick cash advance from Business Fuel.
- NAB QuickBiz Loan: Borrow up to $100,000 for 1 to 3 years. Suitable for financing business vehicles.
What options do I have for business vehicle finance?
- Finance lease. This option allows your business to enjoy the use of a commercial vehicle and all the benefits of ownership while the financier retains vehicle ownership. The lender purchases the vehicle on your behalf and then leases it back to you. You make monthly lease payments until the term of the lease is up, at which time you can pay off the remaining value on the lease and take full ownership of the car, trade the car in or look to refinance the lease.
- Commercial hire purchase. Under this arrangement, you hire a car from a financier for an agreed period. You’ll have to make fixed monthly repayments during this period. While you do not own the vehicle during the hire term, you take ownership once the hire term is up and you have paid off the total price of the vehicle and any interest charges.
- Chattel mortgage. A chattel mortgage involves a financier lending you the money you need to purchase a vehicle. You become the owner of the vehicle once it has been purchased but the financier takes out a mortgage on the vehicle as loan security. Once the contract is over, the mortgage is removed.
- Novated lease. A form of salary sacrificing, a novated lease involves an agreement between an employer, an employee and a financier. It involves the employee entering into a finance lease with the financier, but in this case, the employer takes on the employee’s role of making repayments under the lease. The employer looks after the monthly lease rentals from the employee’s pre-tax income, and the vehicle is available for the employee to use. A "fully maintained novated lease" is also available, under which the employer looks after the lease repayments and the vehicle’s operating expenses from an employee’s pre-tax income.
- Business loan. You can also use standard business finance to fund the purchase of a vehicle. You have a range of options available with business finance, including a term loan and a line of credit.
How do I decide which business car finance is right for me?
There are a number of financing options available to help you purchase a business vehicle, and it can be tricky to work out which one is best. To help narrow down your choices, consider the following:
- Do you want to retain ownership of the vehicle? Some of the financing options give you ownership of the vehicle once you start repaying the loan, but others only grant ownership at the end of the term. Some, such as finance leases, are not intended to grant ownership at all. Consider whether you want to be able to claim the vehicle as a business asset when considering your finance options.
- What is the purpose of the vehicle? If the vehicle will be used for a lot of driving then you may want to consider an option that gives you a new vehicle at the end of the term (finance lease). This is also the case if you're planning to replace the vehicle within that time frame.
- What is your business situation? Whether 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.
Tips to get the most out of your business vehicle finance
- Chat with an accountant before you apply. There are a number of car financing options available to businesses and an accountant can help you decide which one may work best. Accountants can also tell you which part of the finance – the interest and the rental payments – are tax-deductible to help inform your decision.
- Negotiate your repayments structure. Lenders can offer monthly, quarterly, half-yearly or annual repayment terms or even repayments structured around your cash flow. See how flexible the lender is before you apply and negotiate terms based on your business needs.
- Remember the $20,000 tax break. If you operate a business with an annual turnover of less than $10 million, you can claim an immediate tax deduction on a vehicle under $20,000. Find out how the tax break works.
Factors to consider when comparing business vehicle loans
- Terms. The length of the term of your business car finance arrangement can influence how much money you have to pay in order to gain ownership of a commercial vehicle. For loans that give you ownership upfront, the term is also important to consider for forward planning, especially if there is a balloon payment required at the end of the term. Many finance options allow terms of between 12 months and 5 years, so compare the terms available and find an option that suits your budget and needs.
- Interest rate. What interest rate will you be charged under your vehicle finance arrangement? Will the rate be fixed or variable, offering either the security of knowing what your repayments will be or the chance to take advantage of falling rates?
- Repayment options. Look for a vehicle finance option that allows you to tailor repayments to suit your cash flow.
- Tax requirements. Claiming the expense of buying a vehicle as a tax deduction varies greatly depending on which vehicle finance option you choose. For example, a chattel mortgage will allow you to claim interest charges and the depreciation on the vehicle as a tax deduction, while under a finance lease you can claim a deduction for the whole of the lease.
- 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.
What are the benefits and drawbacks to consider?
- Wide range of options. There are vehicle finance options available to suit a wide range of businesses.
- Possible tax benefits. Depending on how much you spend and the business car loan option you select, your business may be able to benefit in terms of tax.
- Flexible repayments. Choosing the right finance option enables you to select a repayment schedule that suits your needs and budget.
- Tax issues. Navigating tax issues can make choosing the right loan complicated and may require the help of a tax agent.
- Vehicle ownership. Not all options allow you to retain ownership of the vehicle, meaning you will be paying for an asset that you cannot claim business ownership over.
Are there any risks involved with business car loans?
As with any financing option, the most important thing is to ensure you don't choose a business car finance option that is too expensive for your business. Factor in the cost of the vehicle, the regular repayments and the length of the loan term. Consider your dips in cash flow when deciding whether the repayments are feasible.
Another common pitfall is simply not understanding the range of vehicle finance options available and selecting one that doesn’t suit your business’s needs and budget. Enlisting the services of an accountant can help.
Have more questions about business vehicle finance?
What's the difference between a novated lease and a fully maintained novated lease?
A novated lease is where an employee enters into a finance lease with a financier, but your employer makes the monthly lease repayments from your pre-tax income. Under a fully maintained novated lease, your employer will use your pre-tax income to pay the lease repayments and the vehicle's operating expenses.
Should I lease or buy?
A wide range of factors can influence the answer to this question, but here is a guide that weighs up the pros and cons.
How can I work out the best choice tax-wise?
This is where an accountant can help. The right choice will depend on your business and your business finances, so getting some expert help is the way to go.
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