Written by Small business, medium business, enterprises – all business can do better with lower rates on car finance and more freedom to choose. Savvy gives you the options to make the most of your investment in vehicles. We offer a range of car loan and lease products tailored to suit your companies needs.
What is business car finance and how does it work?
Business car finance covers a range of products tailored to small, medium and large businesses when it comes to buying or leasing vehicles for commercial purposes. There are four main products to consider under the business car finance umbrella, which are:
Chattel mortgage
A chattel mortgage is the only type of business car finance whereby you own the vehicle from the start. It’s structured in much the same way as a secured car loan, with repayment periods extending from one to seven years on a weekly, fortnightly or monthly basis. However, it offers borrowers a range of tax benefits.
Hire purchase
Under a hire purchase agreement, your financier purchases the vehicle on your behalf and hires it out to you in return for ongoing payments. Once your business has repaid the full purchase price of the vehicle, ownership is transferred to you. This type of arrangement may be suited to businesses requiring off-balance sheet accounting.
Finance lease
Under a finance lease, your financier buys a car and leases it to your business, with monthly costs charged to hire the vehicle. Up to 100% of these payments are tax-deductible, with terms ranging from one to five years. At the conclusion of your lease, you can choose whether to buy the car by paying the residual out of pocket, trade in or sell the car to cover the residual and lease another car or refinance the residual and extend the term of your lease.
Operating lease
Operating leases work in the same general way as finance leases, except they don’t come with a required residual payment and instead enable you to hand the car back after the lease. On-road costs are also typically sorted for you and incorporated into your loan, making it more expensive but leaving the risk of vehicle obsolescence with the lessor, not you.
While technically not a business car finance option, there is also novated leasing. This option is likely more suitable to companies that want to also allow employees to use their vehicles for personal use and receive tax benefits.
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How much can I borrow with a commercial car loan?
Commercial car loan borrowing power is decided by several factors, such as the following:
- Your business’ revenue and expenses: the amount your business has available after expenses are deducted from all your incoming cash will have a large say in determining what’s an affordable deal for you.
- The value of the asset you’re buying: because your loan is secured by your car, the loan amount will reflect its cost. You may be able to borrow up to 100% of its purchase price, or sometimes more if you include on-road costs like registration and stamp duty.
- Your lender’s minimum and maximum loan amount: of course, you can only borrow within the range your lender allows. Many lenders don’t have a set maximum loan amount, but minimums do apply. When you apply with Savvy, we’ll match you with a lender whose minimum and maximum (if applicable) loan amount suit your borrowing needs.
How much will my business car loan cost?
There’s also a range of variables that can impact the cost of your business car loan. These include:
- Interest and fees: the higher your rate and more costly the fees charged, the more you’ll pay as part of your loan agreement. On a $30,000, five-year loan repaid monthly, the difference between 6.99% p.a. and 7.99% p.a. is over $850.
- Loan size: larger loans will attract more interest. For instance, a $30,000 loan repaid monthly over five years with 6.99% p.a. interest will attract $5,219 in interest, but increasing the sum to $120,000 for a more expensive vehicle like a truck loan causes this to rise to $20,876.
- Loan term: the longer you take to repay the loan, the greater your interest spend will be. Compared to the $30,000 loan example mentioned above, lengthening your term to seven years will cost $8,653, which is almost $2,500 more.
- Deposit: by putting up a larger deposit, you’re reducing the size of your loan and cutting down on your interest spend as a result. On the same $30,000 seven-year loan example above, a $3,000 (10%) deposit would reduce your interest by over $1,400.
- Repayment frequency: making additional repayments will help you pay off your car loan faster and save you on interest. By contributing an extra $100 per month on a $30,000, five-year car loan repaid monthly at 7.50% p.a., you’d save over $1,000 and have your debt cleared ten months early.
- Residual: whether you have a residual, and its size, will affect the cost of your loan.
However, as discussed above, you may not be liable to pay any interest if you use the car for business purposes 100% of the time. If you don’t, though, it’s important to compare your commercial car finance options.
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What tax benefits are available through business car finance?
Motor vehicle tax deductions refer to expenses associated with owning and operating a vehicle that are eligible for tax relief or deductions. These deductions are available to employees, sole traders and businesses in Australia using their vehicles for work-related purposes, subject to criteria set by the ATO. You might also be eligible to claim GST tax credits.
The tax benefits available to your business will vary depending on the type of car lease or loan arrangement you take out and the nature of your business’ usage of the vehicle. Here's what you could claim for each arrangement:
- Chattel mortgage: GST on the purchase of the vehicle, interest on loan repayments, depreciation and instant asset write-off (if eligible)
- Hire purchase: GST on the purchase (claimable by the financier), interest on loan repayments, depreciation and instant asset write-off (if eligible)
- Finance lease: up to 100% of the cost of leasing payments
- Operating lease: up to 100% of the cost of leasing payments
Expenses that the ATO considers claimable include:
- Depreciation
- Fuel
- Insurance premiums
- Tolls
- Oil
- Repairs and servicing
- Interest or lease payments
- Vehicle registration
However, costs like licence renewal, fines and penalties are not tax deductible. Furthermore, if you use a car under a salary sacrifice or novated lease arrangement, be aware that you cannot claim running costs, though you may be able to claim additional expenses.
You can also only claim for your vehicle’s business use. While this does not generally cover travel between your home and place of work, you can claim tax deductions for trips to client meetings and conferences and temporary worksites.
Likewise, the amount you can claim for GST is determined by business usage. Businesses that exclusively use their vehicles for commercial purposes will be able to claim the full GST amount (up to the set car limit), while those buying a car for both business and personal use in Australia can claim a partial credit.
This information only serves as a guide, so speak to your accountant or a tax professional for more information specific to your situation.
How do I calculate motor vehicle tax deductions?
The ATO offers three main methods for calculating car expense deductions:
1. Cents per kilometre method
This method takes a simplified approach where you claim a set rate per kilometre travelled for work purposes. To calculate your deduction, multiply the number of work-related kilometres travelled by your car by the applicable rate per kilometre for the income year. For 2024–25, this is 88 cents per kilometre.
Example: During the 2024–25 financial year, Sarah travelled a total of 3,000 kilometres for her job as a real estate agent. Sarah calculated her deduction amount by multiplying the total kilometres travelled (3,000) with the rate per kilometre for that year ($0.88), giving her $2,640 in deductible car expenses.
You can claim a maximum of 5,000 work-related kilometres per car, and you must keep records to substantiate your claim. If multiple owners use the car for separate income-producing purposes, each owner can claim up to 5,000 work-related kilometres.
2. Logbook method
This is a more detailed method where you keep a logbook recording all car expenses and the percentage of work-related travel. The logbook can be kept as a physical document or electronically using the ATO’s free myDeductions tool. You must also keep all receipts and other records relating to your car expenses.
Your logbook is valid for up to five years and must cover at least 12 continuous weeks, detailing the following:
- The destination and purpose of each journey
- Odometer readings at the start and end of each journey
- Total kilometres travelled during the period
If you are using the logbook method for multiple cars, ensure each vehicle has its own logbook covering the same period.
To calculate your deduction using a logbook:
- Determine the total kilometres travelled during the logbook period.
- Identify the total kilometres driven for work trips.
- Divide work kilometres by total kilometres and multiply by 100 (percentage) to get your work-related use percentage.
- Add up your total car expenses from receipts and estimates.
- Multiply your work-related use percentage by your total car expenses to get your deduction amount.
Example: During the 12-week logbook period, John records a total of 2,500 kilometres travelled in his car, 1,200 kilometres of which were specifically for work-related trips. To determine his work-related use percentage, John divides the work kilometres (1,200 km) by the total kilometres (2,500 km) and multiplies by 100 to get a percentage of 48%. During the same period, his total car expenses amount to $800. To calculate his deduction, John multiplies his work-related use percentage (48%) by his total car expenses ($800) to get a deduction amount of $384.
3. Actual cost method: involves supplying receipts for vehicle running and repair costs (must be used by companies and trusts, as well as sole traders and partnerships if other vehicles are also being claimed for).
What is a residual payment and how do they work for commercial car finance?
A residual payment, also known as a balloon payment or a residual value, is a lump sum attached to the end of a loan or lease to be paid at the conclusion of the agreement. Residuals work differently depending on whether you’re taking out a commercial loan or lease.
Car lease residual
Residual values for car leases are set by the ATO and are intended to reflect the estimated value of the vehicle at the end of your term. The minimum required residual values for car leases are as follows:
| Lease term | Residual value |
|---|---|
|
12 months |
65.63% |
|
24 months |
56.25% |
|
36 months |
46.88% |
|
48 months |
37.5% |
|
60 months |
28.13% |
Source: Australian Taxation Office (ATO)
These only represent minimum guidelines, so you may find your leasing company sets your residual at a higher cost.
Car loan residual
Unlike leasing residuals, those attached to a chattel mortgage can be set at whatever amount you or your lender requires. It’s important to note that having a residual attached to a loan will reduce its month-to-month cost but increase the amount of interest charged overall. You can see how this works in the table below:
| Balloon payment | Repayments | Total interest | Total saving |
|---|---|---|---|
|
$6,000 |
$519 |
$7,105 |
N/A |
|
$3,000 |
$560 |
$6,587 |
$519 |
|
$1,500 |
$581 |
$6,328 |
$777 |
|
$0 |
$602 |
$6,069 |
$1,037 |
Calculations based on a $30,000 car loan repaid monthly over five years with a 7.50% p.a. interest rate.
How do I qualify for business car finance?
Each lender or lease company will have different assessment criteria for their applications. However, you can expect the following general points to apply:
- You must be at least 18 years of age
- You must be an Australian citizen or permanent resident
- You must have an active ABN or ACN and GST registration and have been running your business for at least 12 to 24 months (solutions may be available for businesses who don’t meet this requirement)
- You must meet any minimum personal or business credit requirements
- You must submit any documentation requested by your lender
What documents are required for business car finance?
Again, the specific documentation requirements will vary depending on your lender or leasing company. However, you can expect to submit some (or all) of the following:
- Proof of identification, such as driver’s licence and passport
- Proof of ABN or ACN registration
- Business tax returns from the last one to two financial years
- Up to six months’ worth of business bank statements
- Business Activity Statements (BAS)
- Information on business assets and liabilities
- Trust deed (if applicable)
If you don’t have tax returns and want to purchase your car, you may have to apply for a low doc car loan. This product allows businesses to access the funds they need for their vehicle purchase by using alternative documentation. This may require a selection of the following:
- Proof of identification
- Business revenue projections
- Trust deed (if applicable)
- Signed declaration of your business income
- Letter from your accountant, confirming the projected income
- Details about your business, its activities and how revenue is earned
How to compare car finance options as a business owner?
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Consider your business' needs
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Review the eligibility criteria
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Evaluate the costs
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Ensure your vehicle is eligible
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Loan size requirements
Your business car finance questions answered
Should I buy a car through my business or purchase it personally?
Whether you buy a car through your business or privately will depend on your individual situation. If your vehicle will be used 100% of the time for business purposes, you may decide the best solution is to make the purchase through your business.
When you buy a car through your business you will have a wide range of potential tax deductions, while purchasing a car privately allows you to avoid fringe benefits tax (FBT).
What is the difference between a chattel mortgage and a hire purchase?
A chattel mortgage and hire purchase work the same in principle but are different “on paper.” In a chattel mortgage, the purchaser takes ownership. In a hire purchase, the bank or lender is the owner. This makes a different for accounting for assets vs. using operating capital. Your accountant may decide one option is better for your business over the other.
I run a seasonal business; can I apply for a chattel mortgage or hire purchase?
Yes, we can arrange seasonal repayment plans according to your requirements.
Do I need to put down a deposit?
No – however, a deposit can help you get approved for a chattel mortgage if you’re a small or startup business, or one with a poor credit rating. By putting down a deposit, you’re reducing your lender’s feeling of risk in you as a borrower. Deposits are otherwise optional, however, and don’t apply at all when it comes to car leasing.
Is business car financing available to self-employed workers?
Yes – self-employed workers are treated in the same way as any other business when it comes to financing their car: provided you meet your lender’s net income requirements and can supply your previous two years’ worth of tax returns, you can apply for the same commercial car finance product that any other small or large business can.
Do I need to put down a deposit for a chattel mortgage or hire purchase?
No. You can borrow 100% of the car’s value, and even cover expenses such as registration, insurance, and maintenance.
Are there any borrowing or finance caps in place?
No – when it comes to vehicle finance, you’re only limited by what your business can afford to repay on a monthly basis. Whether you’re a small business looking for $5,000 to put towards your vehicle purchase or a more expansive enterprise looking to buy or lease a fleet of cars, we’ll connect you with a lender and product suited to your situation.
What other vehicles are available with business finance?
You’re not limited to cars, either: we can help you get approved for anything from trucks, aircraft, machinery or other business equipment.
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