Business Car Loans in Australia

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    How does business car finance work?

    Whether you’re self-employed, manage a small business, or work at a large corporation, there’s a good chance you use a car for what you do. Buying a car for business purposes is very different from getting a personal vehicle. Car finance for ABN holders is an important tool for business growth.

    The premise of a business car loan is that you or your company are spending money to either buy or lease a vehicle, and you then repay the loan as well as any accumulated interest and fees. Business vehicle loans usually begin at $5,000 and have terms of one to seven years. Vehicle loans are a common type of business loan.

    Another key advantage of business car loans is the tax benefits that a business receives. These include claiming the GST back on the car, as well as claiming depreciation during year-end business activity statements. The vehicle can be claimed as a business expense if it’s used for business purposes at least 51% of the time.

    Main business vehicle finance methods

    • Secured loans have the vehicle serve as collateral. This reduces the business’ car loan rates since secured loans are seen as lower-risk for the lender.
    • Low doc car loans require minimal paperwork compared to ordinary loans. Here, the full financials of the business are not required for getting the loan.

    What type of vehicle can business car finance be used for?

    Cars, utes, trucks, motorbikes, and caravans can all be purchased with business vehicle loans. Both new and used vehicles are eligible, although used vehicles would most likely be bought with a sole trader car loan as opposed to by a large corporation.

    What types of business car loans are there in Australia?

    Commercial vehicle finance options vary based on whether the company’s intention is to borrow the vehicle temporarily or to own it outright. Repayment methods and tax considerations also factor into the decision, so it’s important to understand the differences.

    • Chattel mortgage

      You take immediate ownership of the vehicle, but the loan provider can take the vehicle back if the loan is not paid off.

    • Hire purchase

      You hire the car for business use while you make monthly loan payments, and you receive vehicle ownership once the loan is paid off.

    • Finance lease

      You treat the car as yours, but the lender is technically still the vehicle owner. You are not necessarily working towards full vehicle ownership.

    • Operating lease

      You pay to use the car, but there is no intention of potentially transferring ownership from the lender to you at the end of the term.

    What are some alternative business car finance options?

    In certain cases, conventional business vehicle loans may not be the best option. Fortunately, there are multiple other ways of accessing business vehicle and equipment finance.

    • Small business loans are geared for businesses struggling with the major expenses needed to get off the ground. These programs are particularly helpful for connecting new ABN holders to a car loan.
    • Lines of credit are a flexible way to afford a car by using a credit card dedicated for business expenses. These are cost-effective because you are only paying interest on whatever debt was taken out during that particular month, meaning you pay less interest rate overall.
    • Low doc car loans, or low documentation car loans, are an efficient way to get business vehicle finance without being hampered by red tape. These loans do still require some basic information like proof of income, but not as much as full doc loans.

    What should I focus on when comparing business car loans?

    Business vehicle loans come with long and detailed contracts, so it’s important to know what factors to zero in on during this crucial business decision.

    • Interest rate are one of the most important things to look at, since they are the fastest way that a loan gets more expensive. Variable business car loan rates (which are influenced by the Reserve Bank’s cash rate) can mean unpredictable vehicle expenses quarter-to-quarter.

    • Fees are a common way that the sticker price of the vehicle ends up increasing substantially. This can be a frustrating aspect of car loans for ABN holders, since origination fees, administrative fees, and other account fees can quickly pile up.

    • Loan terms are an additional consideration when making business car finance decisions. Longer terms can mean smaller monthly payments but a greater overall cost.

    • Repayment flexibility can be another key factor when comparing business loans. A vehicle payment might be affordable during busy seasons and then become a major strain during slower periods.

    Verifying eligibility for a business car loan

    To better prepare for obtaining a business vehicle loan, it is beneficial to know common lender requirements and what paperwork they might ask you to bring.

    Requirements for business car finance

    Most business car loans will require you to satisfy these conditions:

    • ABN holder and tax resident of Australia
    • Vehicle used for business purposes a majority of the time
    • Business is solvent and has enough steady revenue to afford the loan
    • Prior credit history of business shows proven ability to pay off debt

    Paperwork needed for business car finance

    The exact paperwork requirements depend on whether you’re pursuing low doc car loans or full doc car loans, but you should always at least review these materials:

    • Financial statements
    • Tax returns
    • Cash flow statements

    For a self employed car loan or a sole trader car loan, you may likely need:

    • Proof of ownership
    • Overview of personal finances

    Business car loans FAQ

    Can my company get business car loans with bad credit?
    Yes, business vehicle loans are available for companies with bad credit. However, they may not be able to access the best interest rates since they are seen as a bigger risk.
    What is a balloon payment for business vehicle loans?
    Balloon payments are a way to distribute your loan expenses so that you pay less in regular repayments during the term of the loan and a large one-off repayment of the loan at the very end.
    What are the tax benefits of business car loans?
    Car loans for ABN holders present great opportunities to reduce the overall tax burden of the company. Tax deductions can be claimed based on the GST for the vehicle, the loan or lease payments and associated interest, and even the depreciation of the vehicle asset.
    Do business vehicle loans need a deposit?
    Deposits are not always required, which is great if the company cannot afford a large down payment up front. However, keep in mind that a greater initial deposit can sometimes correspond to cheaper interest rates.

    Business car finance conclusion

    Purchasing or leasing a vehicle can be a major growth accelerant for a business. This, plus the potential tax advantages, can make a business car loan a sensible option. But it also introduces an ongoing cost and a new liability on the balance sheet. Understanding how different business vehicle finance options are structured will ultimately help your company decide on the best route to take.