If you're a sole trader or business owner looking for a business car, you have a range of vehicle finance options. Unlike personal vehicle loans, a business car loan will often come with tax benefits and flexible lease options.
Find out what type of business vehicle finance is right for you and compare business car loans below.
Finance lease. This option allows your business to enjoy the use of a commercial vehicle and all the benefits of ownership while the lender 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. This business car loan lets you hire a car from a lender for an agreed period. You then make fixed monthly repayments over this period and take ownership of the vehicle at the end of the loan term, provided you have paid off the loan.
Chattel mortgage. A chattel mortgage involves a lender lending you the money you need to purchase a vehicle. You take immediate ownership of the vehicle but the lender takes out a mortgage on the vehicle as loan security. Once the contract is over, the lender will remove the mortgage.
Novated lease. This is a vehicle finance option that allows employees to lease a vehicle using their pre-tax income. The employer arranges for the lease payments to be taken directly from the employee's salary, meaning they can reduce their taxable income. The employee will generally need to stay employed throughout the lease period and have an employer that supports novated leasing.
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.
Car loan. Many regular car loans may also be available to businesses, although without the tax benefits of other business vehicle finance options.
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 financing options give you ownership of the vehicle once you start repaying the loan, but others only grant ownership at the end of the loan 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 business car loan options.
What is the purpose of the vehicle? If you will be driving the vehicle a lot, then you may want to consider a car loan that gives you a new vehicle at the end of the term (finance lease) to avoid overuse. 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 only available to employees, which means sole traders are unable to apply.
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.
What are the benefits and drawbacks to consider?
Possible tax benefits. Your business may receive tax benefits, depending on how much you spend and the business car loan option you select.
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 your business could be paying for an asset that it does not own.
Things to keep in mind when comparing business vehicle loans
What are the features of the loan? This includes the interest rate, length of the loan term and any fees and charges you will need to pay.
How do I repay the loan? You will need to make regular repayments with any form of vehicle finance, and you will need to factor these into your business's cash flow plan. Look for a vehicle finance option that allows you to tailor repayments to suit your cash flow. Some finance options, such as commercial hire purchase, may require you to make a lump-sum balloon payment at the end of your loan term, which you will also need to factor into your budget.
What are the tax implications of the loan? Claiming the expense of buying a vehicle for your business 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.
Compare business car loans
Bigstone Small Business Loan: Borrow up to $5,000,000 for 1 to 5 years. Suitable for purchasing a range of assets including business vehicles.
GetCapital: Borrow up to $750,000 for 1 to 3 years.
Max Funding Business Loan: Borrow up to $300,000 for 1 month to 1 year. Receive funds on the same day. Suitable for financing a business vehicle.
Business Fuel Loans: Borrow up to $200,000 for 3 to 18 months. Invest in your business with a quick cash advance from Business Fuel Loans.
NAB QuickBiz Loan: Borrow up to $100,000 for 1 to 3 years. Suitable for financing business vehicles.
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 you can't afford. Factor in the cost of the vehicle, the regular repayments and the length of the loan term. Consider your long-term cash flow to help work out if the repayment size is manageable for your business.
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 you find the business car finance option that is right for you.
Frequently asked 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.
Matt Corke is Finder's head of publishing for rest of world and New Zealand. He previously worked as the publisher for credit cards, home loans, personal loans and credit scores. Matt built his first website in 1999 and has been building computers since he was in his early teens. In that time, he has survived the dot-com crash and countless Google algorithm updates.
In this submission to the Treasury inquiry into Future Directions for the Consumer Data Right being led by Scott Farrell, we focus on the topic of switching and how this could be encouraged through the introduction of write-access to the CDR. We also share some details on switching in the industries set to be covered by the CDR, as well as high-level views on how write-access could be used to enable payment initiation through the CDR.
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