At Apollo Financial Solutions we can advise on the best solution when it comes to financing a motor vehicle. Whether your a business owner or employee there are different options available. We can access a raft of different type of car loans to help you get the best possible deal for your personal circumstances. Be it a Novated lease (through your salary), or business chattel or car loan. Give Apollo a call and we will assess and advise the best option for you.
What's options do I have when buying a car?
WE CAN GET YOU HEADING IN THE RIGHT DIRECTION
There are 4 main types of leases available in the marketplace and we can help advise you which will be the best solution for your needs
Sale & Lease back
Commercial Hire Purchase
A CHP (also commonly known as an asset purchase) contract is an agreement with fixed payments over the term. However, ownership is 'implied' at the outset. The hirer claims interest and depreciation against income during the term of the agreement.
A chattel mortgage is an agreement that allows the borrower to take ownership of goods on delivery but the financier secures a loan by registering a charge over them. It is a flexible allowing an unlimited amount of deposit and borrowers can choose either full repayment over the term or a balloon (lump sum) payment at the end.
A consumer car loan is the most common option people would be aware of when purchasing a new vehicle. The lender secures the loan against the vehicle so a lower interest rate can be offered than a standard personal loan. Flexible terms are available from 1- 7 years to keep payments manageable.
Include EXTRAS in your finance
The start point for financing equipment is normally the purchase price of the asset or equipment itself. However, it should be remembered that it may also be possible to include other items in the final amount to be financed.
The types of additional items that may be included are:
- extended warranties
- the cost of any maintenance programs
- initial on-road costs, statutory charges and dealer delivery charges
- some operating costs, such as fuel, servicing charges and parts replacement
Determining Balloon Payments
Lease and hire purchase payments may be structured so that a large final loan repayment, commonly known as a balloon payment, can be made. The balloon payment usually covers the residual value of the asset. The reduced initial loan payments can aid business cash flow. This type of structure is very common for the leasing of motor vehicles. Balloon payments reduce vehicle loan repayments by allowing a large final loan repayment to cover the residual value of the vehicle.
Potential wear and tear on the vehicle will determine whether or not a larger residual value is used to calculate the balloon payment or a smaller one: the greater the wear and tear, the smaller the residual and therefore the smaller the corresponding balloon payment. Where possible, the payment schedule should be structured so that the residual value is greater than the balloon payment, particularly if the vehicle is to be returned to a lessor at the end of a lease term.
By setting a larger balloon payment for the end of the term, which can vary according to individual circumstances, the regular payments can be reduced to assist in a business’s cash flow. However, the reduction in the size of the payments now may mean more has to be paid at the end when the balloon payment is made.
The ATO has established guidelines for lease balloons as follows:
- 12 months 65.63%
- 24 months 56.25%
- 36 months 46.88%
- 48 months 37.50%
- 60 months 28.13%
Treatment of Luxury Cars
When leasing a car over a certain limit, the lease will be treated as a notional sale and loan transaction with the actual lease payments being divided into notional principal and interest payments. The interest payments are then potentially tax deductible. The owner of the car may also claim for a deduction in the decline of the value of the car, if applicable.
The luxury car limit varies from year to year. The Australian Taxation Office (ATO) publishes the car limit for the relevant financial
Treatment of GST
GST is treated according to the type of financing used and may also play a part in the decision process for determining the type of financing facility to be used.
Treatment of the GST is as follows:
Leasing: Monthly lease rentals are subject to 10% GST that can be claimed as an ITC if the lessee is registered for the GST.
Chattel mortgage: The GST is also applied to the purchase price but can be claimed upfront if the purchaser is registered for the GST.