little white car

Tips for financing a car

Financing a new car? Which method should you select?

Buying a new car under your business can be confusing. With so many options available, which one do you go with and what will be best for you? Below we take a look at the differences and what option is likely to fit your business.

Lease – A lease is a straight monthly commitment. You claim GST on each payment and you claim an outright deduction for the lease payments for tax purposes. You can’t depreciation your vehicle either. A  lease is required to have a balloon payment and whilst balloon payments reduce your monthly commitments, it does however increase the amount of interest you are paying by roughly $1,800. Therefore, leases have become less popular. You also need to be aware that you are responsible for any shortfall between the market value and the remaining payout.

Novated Lease – this is an option you’d most likely offer to an employee. If you’re buying yourself a car, even though you maybe an employee, this isn’t the option for you. This also carries a balloon payment which cause the same problem as a standard lease.

Bank Loan (personal Loan) – this isn’t an option you’d look at if you’re purchasing it under your business. Interest rates are also higher under a personal loan.

Hire Purchase – Under this purchase option, once you make the final repayment you own the vehicle. You have the option to select no balloon payment and you can also claim depreciation (up to limit of $57,466) and the interest amount each year for tax purposes. When it comes to GST, you’ll claim the GST back on each repayment.

Chattel Mortgage – Once you make the final repayment, you own the vehicle. You have the option to select no balloon payment and you can also claim depreciation and the interest amount each year. These cost a couple of hundred dollars more to setup but with the upfront GST refund it’s well worth it – this is the main reason we suggest clients get a chattel mortgage. In your next BAS, you can claim the back the GST upfront and this can really help with cash flow. This does however follow the Luxury car limit rules with the max GST claim being $5,222.

You just need to be careful if you want to pay out your chattel mortgage early, as you may experience high break costs.

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