When you’re buying a car or other vehicle for your business, there are two main ways you can finance it.
- Car or equipment financing from a bank or other finance provider
- Dealership financing, where you accept the terms of the dealership from where you buy
Take some time to understand and compare your options in order to ensure you get the right solution for your situation.
Here are some things to consider as you look for the right solution.
Get your quote in writing
Make sure your quote includes the type of finance agreement (such as Chattel Mortgage, Hire Purchase, Finance Lease or Operating Lease), the cost of the vehicle, all fees, your loan term, interest rate, repayments and balloon or residual payment if you have one. A balloon or residual payment is a lump sum you pay at the end of your loan term that covers any remaining money owing. Some providers allow you to choose how big or small you want the last payment to be so it doesn’t negatively impact your cash flow.
Understand your repayment amount
Repayment amounts can sometimes include additional costs like monthly account fees. These kinds of administration charges can add up over time, so it’s important to understand exactly what is being financed into your agreement and how your repayment is calculated.
Understand the amount being financed
It’s a good idea to research the cost of the car you want before you head to the dealer. You may find that the price of the car under financing arrangements might be higher than market value. This can be to help cover the costs of providing lower interest rates and other benefits or incentives. This is where a detailed quote will help you compare the offer and ensure you’re getting a fair deal.
Understand any restrictions and conditions
When finance is linked to a manufacturer or dealer offer, you need to know what’s included in your finance arrangement. Sometimes, maintenance plans, additional warranties, insurances and optional extras can be included in a package, so you need to make sure these are meeting your needs and are not adding to the total cost unnecessarily.
Get pre-approval for your financing
Think about financing your purchase somewhere other than where you buy your vehicle. Pre-approval from a bank or other finance provider may give you a better idea of the costs and any other details or conditions. The more information you have before you start negotiating your purchase might help you to get a better deal on financing and on price. Sorting out pre-approval helps you know how much you have to spend, which can also help you stick to your budget.
Other things to think about
1. Your cash flow
A new vehicle might enable you to expand your business, or take advantage of new opportunities, and this might possibly lead to increased revenue. A business banker or your accountant can help you understand the effect this may have on your cash flow.
2. Tax benefits
If you’re considering a small car or used vehicle, you may be eligible for the Australian Federal Government’s instant asset write-off, which applies to both new and second-hand equipment under $20,000. You can check the Australian Taxation Office website for more details.
There might be potential tax benefits in financing, such as being able to claim depreciation and interest and goods and services tax (GST), or input tax or credits. It depends what kind of finance agreement you want so consider talking to a professional financial adviser, accountant and tax adviser.
There’s quite a few options to consider if you decide to finance a vehicle or equipment purchase for your business. Make sure you have a clear understanding of what the total costs will be, what the structure of the options include and what will best suit your business.