The most common car loan for businesses. It is a fixed interest and payment loan where the Lender holds a mortgage over the car – this is the security for the loan. 

The benefits of a chattel mortgage are:

1. The business takes ownership of the car at time of purchase.
2. Varying levels of upfront capital outlay.
3. Flexible contract terms.
4. Fixed repayments for the term of the loan.
5. Repayments are exempt from GST (GST is paid upfront).
6. Depreciation and interest charged are tax deductible.
7. Lower interest rates as the finance is secured against the car.

 

Commercial Hire Purchase

The lender buys the car upfront and then hires it to the business over a set term. Monthly payments generally pay out the entire loan in the set term, and the car is transferred to the business when all payments are complete. These arrangements have been mostly replaced by chattel mortgages.

The benefits of a commercial hire purchase are:

• Flexibility on the terms such as deposit and/or trade-in; term; balloon.
• Repayments and interest rates are fixed.
• Easy to modify to suit the business’s budget.
• Low cash outlay and no GST on repayments.

 

Finance Lease

The Lender buys the car and then leases it back to the business. This offers the immediate use of the car with little or no capital outlay. The business pays fixed, monthly rental payments and is financially responsible for the maintenance of the car. At the end of the lease period, the business is given the option to refinance, return, sell or buy the car for the residual amount.

The benefits of a financial lease are:

• Immediate use of the car with little or no capital outlay.
• Repayments are generally tax deductible, but GST is payable
• Lease payment is made from pre-tax dollars.
• Interest rate is fixed and is low because finance is secured against the car.

 

Operating Lease

An agreement where the Lender buys the car and rents it to the business. The Lender retains ownership of the car. The business has no risks associated with ownership, including the residual at the end of the period. At the end of the term, the business has the option to buy the car, continue to rent it or change to another (usually newer) car.

The benefits of an operating lease are:

• Businesses don’t list operating leases on balance sheets.
• Fixed repayments over a fixed period.
• No risks with ownership and residual payments.
• Rent is tax deductible

 

Novated Lease (for consumers)

A three-way arrangement where an employee’s wage is reduced – through salary-sacrifice – in exchange for an equal value of vehicle benefits. The employee leases the car directly from the Lender. The employer has the obligation to pay the financier through a novated deed on the employee’s wage. All operating costs of the car – registration, insurance, servicing, tyres, etc – are covered by the individual. The individual has sole responsibility for the car.

The benefits of a novated lease:

• Individual can buy the car at the end of the lease.
• Car can be leased for 100 per cent private use.
• Allows the employee to salary sacrifice with pre-tax income.
• Employee has the choice of a preferred vehicle.
• Employer benefits because it is a simple way of boosting a remuneration package.

 

Please note – New ABN Finance does not assist with Consumer loans or leases. We can refer you to a partner who does.