What Is A Commercial Hire Purchase Car Loan?
A commercial hire purchase car loan is a unique way for businesses to buy vehicles.
Instead of going through the traditional financing process of borrowing a large sum or money to buy a vehicle, the lender buys the vehicle for the company. In turn, the company then hires out or rents the vehicle from the lender, making monthly payments for that service. Eventually, the purchase price is paid off and the vehicle can either become property of the business or it can be traded in or refinanced. You might think that this sounds like an odd way to buy a car, but it can work well for businesses. Instead of having a large debt on their books for several years, they merely have a monthly rental payment. This small change can make a big difference in the overall financial standing of most companies.
Why Choose A Commercial Hire Purchase Car Loan?
Value – If you take out this type of car loan, you are more likely to retain higher residual value. Based on the type of vehicle or vehicles that you purchase, you can get a return of up to sixty percent of the residual value.
Terms – Much like traditional borrowing options, you can set your term from two to five years based on your ability to pay off the debt. The shorter the term, the less interest you wind up paying which in turn reduces your cost. Because this type of financing is secure, it will garner lower interest rates, which also saves money. Typically, there are no ongoing account maintenance fees and fixed interest rates.
That means that your business can budget for the payments for the life of the debt without worry about fluctuations in the market. If you want to further reduce cost, you can choose to put down a deposit on the vehicle, much like you would do with a traditional financing option.
Taxes – As long as the vehicle is being used for business purposes, you can claim some tax deductions for you costs. This includes, claiming depreciation on it, up to the depreciation limit, as well as claiming the interest you are being charged. When you choose this finance option, there will usually be GST charged on the purchase price but not on the monthly payments or the residual payment. If your company is registered on an accruals basis for GST, you can usually claim the purchase price GST on your BAS as an Input Tax Credit.
It is easy to see why this financing option is available as there are so many benefits to using it. However, it is not for every consumer. Only businesses can actually partake in this option. That includes traditional companies, partnerships, and sole traders. If you are self employed, you can use this option even if the vehicle will sometimes be used for personal tasks. The key is to prove that the majority of the use of that car will be related to work that garners income. Businesses who are currently registered for GST on the accruals accounting basis get the most benefit from this type of loan.
They are able to claim the GST on the purchase price, which is a big tax benefit to them. If you are not currently registered and do not plan to register for the GST on an accruals accounting basis then you might consider other, more standard, financing options. One choice which allows you to have the vehicles you need without adding the burden of debt to your company is to lease a vehicle instead of purchasing one. While you will not gain all of the tax benefits this way, it will save you from actually having a loan on your books.
A commercial hire purchase car loan can be an excellent way to purchase vehicles for your company. You get a fixed interest rate, which allows you to adequately budget for your payments. Financially, you avoid having a to add a large debt to your account which benefits your company financial outlook. More importantly, your business can benefit from the tax incentive that comes with type of financing. If you are already registered for the GST on accruals basis, you should look into this option and if not you might want to consider whether or not registering is suitable to your company. Remember to carefully weigh all of the pros and cons to the unique financial needs of your company before making any final decisions. Only you know what is best for your business.
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