Had your eye on a new car for a while but can’t afford to purchase it? Buying a vehicle outright is not the only way to gain access to it. There is a range of finance options available when it comes to vehicles, machinery and office equipment. The choice of what is suitable for you will depend on your financial situation and whether your purchase is predominantly for personal or business purposes. A few such options are outlined below:
With a Personal Loan, the customer borrows funds from a lender without the lender holding any security over the loan. The customer can use the funds for any purpose, including the purchase of a vehicle. The customer takes ownership of the purchased item from the time of purchase and repays the loan to the lender over the agreed terms.
This option is suitable for individuals who wish to purchase a vehicle or equipment that does not fit into the other lending options or who do not wish to have a loan secured against their purchase.
Secured Car Loan
A Car Loan is similar to a Home Loan in the way it works, with the exception that the car (or equipment) is held by the lender as security over the borrowed funds as opposed to a property. The customer takes ownership of the purchase from the time of purchase, while repaying the loan over the agreed terms. Once the contract is completed the customer is given a clear title for their purchase.
This option is suitable for individuals who wish to purchase a recent model car but do not have the option of novated leasing or will not be using the vehicle predominantly for business purposes.
With a Car Lease, the lender purchases the vehicle on behalf of the customer, who then pays a fixed monthly amount to lease the vehicle back from the lender. At the end of the lease term the customer can pay a final instalment and take ownership of the car, trade it in or re-finance the final instalment and continue the lease.
Car Leasing is suitable for when the leased vehicle is going to be used mainly for income producing purposes. This option is available not only to individuals, but partnerships and companies. See also Novated Lease.
Novated Lease (Salary Packaging)
In a Novated Lease an employee leases a car under the obligation of their employer and the monthly lease rental is paid directly from the employer to the financier. The lease rental is sourced from the employee’s gross income. This is also a form of salary sacrificing the income.
A Novated Lease will suit employees whose employer offers salary packaging and who wants to include a car as part of this package.
Commercial Hire Purchase (CHP)
A Commercial Hire Purchase (CHP) is similar to a Car Lease except that at the end of the contract term the total price of the vehicle plus interest have been paid in full and the customer becomes the owner of the vehicle.
A CHP is suitable for when the vehicle will be used for business purposes and for entities (sole traders, partnerships and companies) who account for GST on an Accruals basis.
Under a Chattel Mortgage a customer can take out a loan from a financier to purchase a vehicle, who in turn takes a mortgage over the purchased vehicle (by registering a Fixed and Floating Charge with ASIC) as a security for the loan. The customer takes ownership of the vehicle at the time of purchase and makes repayments on the loan to the financier. Once the contract is completed, the mortgage is removed giving the customer clear title to the vehicle.
A Chattel Mortgage allows the GST on the price of the vehicle to be claimed up-front, so this option may be suitable for those entities who record business income and expenses as and when they occur.