When purchasing a car for your business, there are a few basic steps that you should take to ensure the right outcome for you and your business:
Decide which entity should make the purchase.
The first decision you need to make, is what entity will make the purchase. Do you operate as a Sole Trader, Partnership or do you have a Company/Trust structure? You should consult with your financial or tax adviser as a priority to determine this structure. It could affect your tax implications, now and in the future. If you have an ABN and are GST registered then you may be eligible for an Input Tax Credit on the GST component of the purchase value.
The entity is also important for the purpose of lending. The same entity must borrow the funds. If your entity has an ABN and is GST registered, then a Chattel Mortgage may allow the GST to be claimed. Chattel Mortgages are a great option for you to maximise the tax benefits related to the cost of the loan.
You may also be eligible for a Low Doc loan which is discussed in our recent article.
Set your budget early.
Regardless if you are self-funding the car or borrowing the funds; a budget is essential. The costs you should consider incorporating into your budget are:
The Loan Repayments.
The Running Costs of the vehicle, such as fuel, registration, maintenance and insurance.
The cost to brand the vehicle with decals or windscreen graphics.
Costs to modify the vehicle to adapt to your business needs, such as roof racks, bull bars or canopies.
It is important to stick to your budget too.
Should you pay cash or finance the car?
It is crucial when deciding the best way to fund the purchase, to consult with your tax accountant or financial adviser. Here are a few considerations:
What are the tax benefits in financing the purchase over self-funding, and vice versa?
Is there a cash flow benefit in financing, rather than outlaying a lump sum of business funds? Are you looking to expand the business? Is cash flow more important right now? What are the costs in borrowing the funds?
Are you eligible for a loan? Pre-Approvals are a great idea to ensure you are eligible for the loan.
Do you have any upcoming tax obligations or other Creditors that need repaying in the short term?
Determine the Loan Terms
If you decide to finance the vehicle then you need to consult with your Broker to understand the terms of the loan. What is the interest rate, loan term and repayments on offer? How will these impact your budget and cash flow?
Consider how long you intend to keep the car for, and align the loan term with this timeframe. For example, if you intend to keep the car for 5 years then should you consider a 7 year loan term or a 5 year loan term with a residual? Are there any exit penalties involved in repaying the loan early?
If you are putting a deposit down on the loan then work with your Broker to determine how much, and balance this with keeping your repayments at a comfortable level. A higher deposit could mean a lower interest rate.
The team at yesapproved.com.au will work with you to help guide you through the process, and we will provide advice on the best structure for you.
Apply for Pre-Approval
Pre-Approvals are a great way to provide you with the peace of mind that you are eligible for a loan; prior to purchasing the car. This will allow you to focus more on the purchase and understand the loan terms before you commit to purchasing.
When you apply for a pre-approval, the process to a full approval is nearly complete. It involves a full assessment of your profile, including credit checks and employment verification.
How long do pre-approvals take? Normally 24-48 hours depending on the lender of choice. The pre-approvals generally last for 30 days, but these can be extended if necessary.
Ensure you are suitably insured.
Insurance is an important risk mitigant. We insure many things in life – health, home, cars and businesses. So it is important to ensure these coverages are in place when you take possession of your car. Is your fully comprehensive insurance in place? The vehicle must be fully insured if it has been secured against the loan. Does it cover the purpose/usage of the car – for example, carrying goods or passengers or flammmable liquids. Read the Product Disclosure Statement and the Policy Wording to ensure the Policy meets your needs.
Loan Protection Insurance should also be a consideration. How will you make the repayments if you fall sick, ill or lose a work contract?
You should discuss your vehicle insurance with your Broker or Insurer. The team at yesapproved.com.au can provide information on Loan Protection insurance.
For more answers to your questions, check out our Car Loan Q&A.
yesapproved.com.au has all of your car loan questions covered, contact us today.
The information is intended to be of a general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.
Any advice contained in this document has been prepared without taking into account your particular objectives, financial situation or needs. For that reason, before acting on the advice, you should consider the appropriateness of the advice having regard to your own objectives, financial situation and needs.