Car and Equipment Finance
In my experience when you go to a car yard looking to buy a car one of two things happen. You either get a great deal on the price of the car, or you had to pay the full price but you got five years interest free. Have you noticed that too? The end price is the same whether you payed upfront or over the finance period. Why not win on both?
I can hear you thinking, “Is it possible to get a great deal on the car price and the finance?” You better believe it is and it’s very simple, come and talk to me first and make sure you can get the finance and I will tell you the rate and then go negotiate hard with the dealer on the price, it’s that simple. There may be a rare time when I can’t beat the dealer but considering that for car and equipment sale, there are a few key lenders in this space and I have access to them as well, I should be able to beat them. In car and equipment finance it’s a different commission pay structure as compared to home loans where you charge between a percentage of the purchase price.
More for running a business but some companies are also letting their employees lease cars and equipment as well now. Not only do you have to decide if you want to buy or lease, but there are multiple lease options, all with their own benefits and drawbacks. For simplicity I’m going to refer to a car being leased or purchased but it’s the same principle for equipment as well. Leases can also vary considering how much of the running expenses are included in the monthly repayment.
A Finance Lease is when the financier buys the car then leases it back to you for a monthly repayment. At the end of the lease you give the car back to the financier and they sell the car, you do have an option to buy it as well. The rental payments are a tax deduction and the GST may be claimed during the term as well as the residual. If you agree the residual or value of the car will be $10,000 at the end of the lease and it’s worth less, you need to pay the shortfall. This is usually used by business to decrease the amount of cash they have to use to get a car.
An Operating Lease is very similar to a finance lease except you don’t have the risk of the residual payment, since the financier maintains control of the car. It can also be customised so if you take out a three year lease for a computer you can have it upgraded at 18 months with the same or a new monthly repayment.
A Novated Lease is a three way agreement between the financier who owns the car, the company who makes the payments by deducting the wages of the employee who uses the car. The lease payments are paid with pre tax dollars which triggers fringe benefits tax which is usually less than your current income tax. If the employee changes job they can take the lease with them if their new employer agrees.
Commercial Hire Purchase is similar to leasing where you pay a monthly fee and you have an option at the end of the lease to buy the car. The difference is that even though the customer doesn’t own the car they are considered the owner in terms of taxation, so they are able to claim depreciation on the car and the interest paid to the financier as well as the GST upfront. This is great for cash flow planning since it reduces the upfront cost and the monthly payments can include a residual payment or not, it’s up to you.
A Chattel Mortgage is usually the best for businesses that want to have good cash flow and use the cash method of accounting. This allows you to claim full GST inputs credits using the cash method as well as the depreciation and interest repayment. It also allows for you to claim the GST upfront if you're an ABN holder.
These are the main lease options that are used but of course there are many more which I’m happy to go through with you in person. The last one I will touch on is the Master Finance Agreement which is like getting a line of credit set up to make it easier when need to buy a new car every six months for your business without having to apply every six months.
Diploma of Finance and Mortgage Broking Management
Mortgage & Finance Association of Australia (MFAA) Full Accreditation