3 Ways To Buy A Car For Your Business
When buying a car for your business, there are several options that you need to consider beyond standard car loans.
Each type of loan or lease works slightly differently, and below we’ll look at the most popular options and the benefits they can offer you and your business.
Option 1: Chattel Mortgage
If you’re looking to finance a vehicle, a chattel mortgage will be your go-to option. Popular with all types of businesses and beneficial if you’re self-employed, a chattel mortgage is a secured car loan that lets you receive some great business benefits as well.
A chattel mortgage works like other types of secured car loan, except you’ll need to make sure you’re using the vehicle mostly for business – so more than half the time.
In return, you’ll get competitive rates, and the benefits of full ownership as soon as you acquire the vehicle. If you want to reduce regular payments further, you can also look at a balloon payment to conserve cash flow.
Why are they so popular?
Chattel mortgages let you claim the GST on the initial purchase price of the vehicle as an input tax credit on your next Business Activity Statement (BAS), provided your business is registered for GST on a cash basis.
Speak to your accountant before committing to a chattel mortgage to see what you can claim.
If a chattel mortgage doesn’t suit your needs, you might want to consider leasing a business car instead.
Both a finance lease and an operating lease can be used to acquire one or more vehicles for your business, but there are some key differences which we’ll compare below.
Option 2: Finance Lease
A finance lease is generally a long-term lease used to finance vehicles or larger assets.
You’ll get all the usual benefits of ownership, and be able to use the vehicle immediately, but you won’t actually own the vehicle – the lender does, which means there’s lower risk and often decent rates as a result.
Usually, you’ll be able to claim the lease payments back as a business expense and, at the end of the term, most finance lease agreements will provide the option for you to purchase the vehicle outright or dispose of it.
Option 3: Operating Lease
While a finance lease might be suitable for a long-term vehicle, if you’re looking at acquiring a car that you plan to upgrade regularly, an operating lease may fit your requirements.
You won’t receive the same types of ownership benefits from an operating lease, as you would with other types of business car finance, but the main benefit is generally being able to upgrade or trade in your vehicle throughout the lease period.
Start comparing your options
Once you’ve decided on the type of finance you think will suit your needs, it’s time to start comparing offers from available lenders.
There are many ways to do this, and just as many things to look out for, but the most important things to keep in mind are:
- The interest rate
- The fees
- The comparison rate (interest plus fees)
- Extra or early repayment penalties
- Vehicle limitations (age or weight)
You can apply for business car finance through your bank, online lenders, directly at a dealership. If you need assistance with your application, you can speak to a finance broker, who will help arrange finance and handle the application in return for a small fee.