What is a business car loan?
A business car loan is a commercial finance type designed to suit commercial enterprises’ and employees’ needs.
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 how you claim tax deductions.
There are four main types of business car finance:
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 and tax deductions on interest and depreciation. There’s also more flexibility in how you make your repayments.
Finance Leasing
A finance lease allows you to use a vehicle for a fixed term at a fixed rate. You can return the car 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.
Hire Purchase
Like a finance lease, the key difference is that you will own the vehicle at the end of a hire purchase agreement.
Novated Leasing
A novated lease is a three-way agreement between you, your lender, and your employer that allows you to purchase a car for personal use with pre-tax income.
Line of credit
Using an existing credit line to purchase a vehicle means no extra paperwork or application costs, but it’s only recommended if the car will be used 100% for business reasons.
What do you need to look out for?
Depending on the business car loan you take out, you’ll need to ensure that it is primarily used for business purposes.
If you aren’t a business owner, you’ll need to speak to your employer about getting a business car loan, as they may need to provide documentation.
How do business car loans compare to traditional car loans?
A business car loan comes with lower interest rates than a personal car loan. There’s also a range of flexible loan structures and repayment options for business car finance that you won’t get with a private car loan.
Business car loan application documents
When you apply for a business car loan, you must have your recent business tax returns to demonstrate your income. You might also need a profit and loss statement from your accountant too.
If you purchase a vehicle using a credit line, you want to ensure 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 the best practice to mix personal and business debts.
Who does it suit?
A business car loan suits anyone using their vehicle primarily for work.
This might mean 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 other business car finance options are available.
