Two of the most common vehicle finance options for business are a Chattel Mortgage and a Finance Lease. Both help you put new vehicles to use today, then gradually pay them off over time from the cash flow they help to generate. Yet there are also some important differences.
A Chattel Mortgage often gives you the option of making a balloon payment – a larger, extra payment you make at the end of the loan term.
Like a house deposit, a balloon payment can help lower your regular payments during the life of your loan – but unlike a deposit, you don’t have to pay it until the end. That can help you better match your outgoings to your business cash flow, or even help fund your final payment from a vehicle resale.
Once you’ve decided on your finance options, the next step is to get a quote. The Business Manager at your local dealership can help. But make sure you understand exactly what your quote covers.
The different options you choose can make a big difference to both your upfront expenditure and your borrowing costs over time. It’s important to ensure the quote includes the type of finance agreement involved (a Chattel Mortgage, for example), whether there’s a balloon payment, and what’s being financed, including any on-road costs.
It’s also important to check the details of interest rates, fees and loan terms, especially when comparing finance options. For example, a loan with a longer term may appear to have lower repayments now, but it could also mean paying more over the life of the loan.
Depending on your situation, commercial vehicle finance can offer significant tax benefits, helping reduce the cost of funding the vehicles your business depends on.
With a Chattel Mortgage, you may be able to claim a tax deduction for interest and depreciation. You may even be able to take advantage of the government’s instant asset write-off, potentially enabling you to claim an immediate deduction for the cost of the car in the first year.
With a Finance Lease you may be able to claim a tax deduction for lease payments and any residual payments, as well as claiming back GST.
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