What Are Your Available Options for Vehicle Financing?

You’ve decided that you need a new vehicle to improve business operations. You’ve chosen the type of the vehicle, the manufacturer, and the year model. Now, only one thing stands between you and your future business car – financing the vehicle. In a perfect world, you’d purchase the car straight up in one go. No monthly fees, no interest payments, and no possibility of losing your purchase should something happen and you lose your ability to pay. This is no doubt the best path you can take, but if you’re like eight of out ten car buyers, there’s a huge chance you’d be paying for your purchase through a financing institution. The key to successfully leasing a vehicle for business is to understand the basics of each car financing option available.

Four Options For Vehicle Financing

Dealership Financing

Dealership financing is one of the easiest to get. Most dealerships can easily arrange vehicle loans even for individuals or businesses with bad credit history because of their relationships with a number of lending institutions. In some cases, it’s possible for a buyer to get a car for as little as 10% downpayment with over 6 years to pay off the remaining balance. With this option, you would ideally want to pay a huge amount for downpayment in order to minimize the amount that needs financing. Keep in mind, too, that with dealership financing, the longer the duration of the loan, the higher the interest rate.

Bank Financing

Bank financing may require a bit more legwork, but it will usually give you lower interest rates. The car you purchase, though, will serve as security for the loan. This means that the bank can repossess your purchase if you fail to keep the agreement. Most businesses go for this option because it’s relatively easy to acquire and the interest rates are not bad in most cases, with around 3% per year.

Using Your Own Mortgage

This is not a very common path for businesses to take, but if you have a facility that allows you to take equity like in an access bond, for instance, you may want to consider using your own mortgage to buy a vehicle. What makes this an ideal option is that mortgage interest rates are usually lower, which means it will allow you to save up a considerable amount in the long run. The only downside is that there’s a temptation to it for you to pay the purchase off over the mortgage term, which may result in lower monthly payments, but with added interest.

Chattel Mortgage

One of the most attractive car financing options both in the U.S. and in Australia today is through a chattel mortgage. In this option, a finance company lends money to a business to purchase a vehicle, referred to as a“chattel”, and the buyer makes repayment regularly. The buyer can take ownership of the vehicle after purchase, but the finance company takes out a mortgage on the vehicle to provide security for the loan. Once the loan term is completed, the customer is given full ownership of the vehicle. What makes this option even more attractive is that it allows the customer to claim any GST paid on the vehicle on the next Business Activity Statement, as well as claim interest charges and depreciation.

Whichever financing route you choose is all up to you, your financial capacity, and your business needs. What’s important is that you shop around first and do your research well before considering any of these options.


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