If you’re a business owner or self-employed, then chances are you will need to purchase a vehicle or equipment at some stage, even if it’s just a new computer or phone.
When it comes to financing for vehicles and equipment, the types of loans available are different from your typical home loan mortgage, so we’ve answered the top six questions most commonly asked for you.
1.What types of vehicle and equipment finance are there?
- Finance Lease
- Commercial Hire Purchase (also known as Hire Purchase or CHP)
- Chattel Mortgage (also known as Commercial Loan or Equipment Loan)
- Novated Lease
A finance lease provides 100% finance for the assets. In this situation, the lender or bank owns the asset and you lease it from them. Most assets that can be depreciated can be financed. Often there is a minimum finance lease amount of $10,000.
Commercial Hire Purchase
A hire purchase arrangement is an agreement to purchase vehicles, plant or equipment subject to payment terms. During the term of the agreement, the lender owns the goods. Ownership will be transferred across once the final payment is made.
A chattel mortgage is a loan agreement where you borrow funds to acquire an asset. You provide security for the loan through a mortgage to the lender. You generally do not need a deposit for a chattel mortgage and you retain ownership of the asset throughout the term of the loan.
Novated leasing from the financier provides a flexible, portable and convenient way to acquire a car as part of an employee’s salary package. Employees can then lease a motor vehicle of their choice and while they remain employed, their employer agrees to pay the rentals directly from the employee’s gross salary.
2. What is the loan term for vehicle and equipment?
Generally, most loans will be between 12 months to 5 years.
3. What’s a balloon or residual payment?
A balloon payment or residual payment is an amount due at the end of the loan term. It’s used to help lower monthly repayments and assist with cash flow, but it does mean you will have a lump sum to pay out at the end.
Be careful not to set your balloon value too high so that you don’t end up in a negative equity position.
4. What’s the difference between Commercial Hire Purchase and Chattel Mortgage?
The main difference is that with a commercial hire purchase the owner of the asset is the lender, whereas the chattel mortgage is owned by the customer. A chattel mortgage also attracts additional upfront costs such as stamp duty and ASIC fees. However, both types allow you to borrow up to 100% of the loan.
5. What assets can I finance?
Anything that can be depreciated for business purposes, however, different lenders will have slightly different policies on this.
6. Does it cost more to use a broker than go direct through a car yard?
No. A broker, such as Sunshine Coast Financial Solutions, will source the best vehicle and equipment finance options for you by looking over all your needs and then tailoring the right finance option to suit your business and cash flow.