Which Car Finance Option is Best for You?
Choosing the right
finance structure for your new car or commercial vehicle can be a difficult and confusing decision.
It's also very important to make the right choice, as the wrong option can cost you thousands in fees, extra interest, exit penalties and missed tax deductions.
This tool can help you discover which finance option best suits you.
Will you be taking out finance as a...
Does your employer offer salary packaging?
Will the vehicle be used predominantly for business purposes?
Are you using "cash" or "accrual" accounting?
To find out if you are on cash or accrual accounting, look at the top right-hand corner of your BAS statement - it will either say "Cash" or "Non-Cash Accruals".
Suggested option: Novated Lease (Salary Packaging)
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novated lease is a three-way agreement between you, your employer and the finance company, under which you
lease a vehicle and your employer makes the repayments on your behalf. These payments are generally made out of your pre-tax income and exclude GST, which can provide you with significant savings.
Novated Leasing is the most common form of Salary packaging.
The only downside to this form of finance is that it will attract Fringe Benefits Tax (FBT), which most employers pass on to the employee.
Suggested option: Commercial Hire Purchase (CHP)
As your vehicle is going to be used primarily for business purposes, you qualify for a
Commercial Hire Purchase.
This is a commercial finance option that gives you access to the lowest possible interest rates, maximum flexibility to set loan terms and residual values, and also maximises your tax deductions.
Suggested option: Car Loan or
Personal Loan
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Car Loan is a personal finance option with flexible loan terms (two to seven years) and the possibility of having a residual value, which can reduce your monthly payments. Car Loans are also secured against the vehicle, which allows lower interest rates.
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Personal Loan also allows flexible loan terms, has simpler approval requirements and lower minimum lends, but suffers from slightly higher interest rates as the loan is not secured against the vehicle.
The choice between these two options will depend on the car you are buying, your financial situation and the amount you need to borrow.
Suggested Options: Commercial Hire Purchase or
Finance Lease.
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Commercial Hire Purchase. will allow you to claim back the GST in the vehicle's purchase price as an Input Credit on your next Business Activity Statement, and claim tax deductions for depreciation over the vehicle's life.
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Finance Lease. will reduce your loan amount by the amount of GST payable on the vehicle, and allow you to claim the lease payments as a tax deduction over the vehicle's life (subject to the Depreciation Limit).
The choice between these two options will depend on cash-flow considerations, business structure, tax situation, and a range of other factors.
Suggested Options: Chattel Mortgage or
Finance Lease
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Chattel Mortgage will allow you to claim back the GST in the vehicle's purchase price as an Input Credit on your next Business Activity Statement, and claim tax deductions for depreciation over the vehicle's life.
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Finance Lease will reduce your loan amount by the amount of GST payable on the vehicle, and allow you to claim the lease payments as a tax deduction over the vehicle's life (subject to the Depreciation Limit).
The choice between these two options will depend on cash-flow considerations, business structure, tax situation, and a range of other factors.
Disclaimer: Please note that you should always refer to your accountant or a registered tax agent before taking out finance; this advice is general advice only as we are not aware of your personal circumstances. While we make every attempt to give you the best possible product information, Capital Finance Solutions Pty Ltd, its agents, employees and accredited lenders will accept no responsibility for any loss that may arise.
Next Steps:
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- Get an instant online car finance quote.
- Get your finance approved online in less than 60 seconds.
- Send us an online enquiry and one of our Finance Consultants will contact you shortly to discuss Novated Leasing and Salary Packaging in more detail.
- Call us on 02 9037 2768.
