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Car finance tips, options and tax implications

Supplier: Zenith Finance By: Richard Korda
16 June, 2011

Ever noticed that when you finally decide to take the plunge on an expensive item, the updated model comes out two months later - and you’re best mate, or worse, your biggest competitor is prancing about town with it?

If it’s a business purchase – a new car, computer gadget or equipment – the smirk on their face isn’t the only annoying part.

Many businesses rely on, and promote themselves as, being industry leaders.  Which means an outright purchase can be costly in more ways than one. 

So today, I thought we’d have a quick look at car financing options – so you can be the one cruising past your rivals workplace with the grin from ear to ear:

But first, why get car financing?

There are lots of good reasons:

  • You can upgrade and replace vehicles much more regularly and with far less hassle than when you buy outright
  • You’re only paying pre-arranged amounts at set intervals, rather than investing a lump sum at the beginning.
  • There are often tax benefits.
  • You can invest the available cash in other areas.

Types of car financing

Determining the best type of car finance can depend on your financial situation and often whether you’re a sole trader, individual, partnership or company. 

Commercial hire purchase

Also known as a term purchase, offer to hire, hire purchase, asset purchase, CHP or HP. With this type of loan your financier purchases the car on your behalf and hire it out to you for a fixed monthly repayment over an agreed period. When your contract term finishes and you’ve paid in full, you own the car.

Some of the advantages include:

  • You can choose to start or end your contract with a big payment.
  • Your payments are fixed so you always know what you’re up for.
  • You can purchase the car during the term of your loan.
  • There may be tax advantages.

Chattel mortgages

With this sort of financing your financier gives you the money up front to buy the vehicle, so you own it straight away. As security, we take out a mortgage over the vehicle with the ASIC. If you don’t pay the loan your financier can sell it. When you’ve paid the loan in full, the mortgage title is yours.

Some of the advantages include:

  • Lower interest rates as the vehicle is secured by mortgage
  • You can choose to start or end your contract with a big payment
  • Your payments are fixed so you always know what you’re up for
  • You can claim 100% of GST as a credit on your BAS statement
  • They can work well for smaller businesses with less than $2 million turnover.

Finance lease

These are sometimes called leases or equipment leases.  The financier buys the car and rents it to you at fixed monthly amount over an agreed period.

With finance leases the financier still owns the car at the end of the lease period. However, we often come to an arrangement with our finance clients who are keen to buy at the end.

Some of the advantages include:

  • You don’t tie up any funds – just your repayments
  • Lower interest rates, as the equipment is secured by mortgage.
  • Your risk is lower because you don’t fork out big money
  • You always know what you’re up for each month
  • Possible tax advantages and no GST to pay.

What about GST and Luxury Car Tax?

This will depend on your individual situation, income, and the finance package you decide upon. So it’s important you know your options and what each one means in regards to tax and GST.

While you need to speak to your financial advisor about tax and GST, the Zenith team can certainly help you with your financing options.

You might also like to read my article on car fringe benefit changes and where they’ll affect owned and leased vehicles. 

Source: Zenith Finance