Best Business Car Loans in Australia
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How Lend can help you with business vehicle finance
We work with 70+ lenders
We have access to a wide range of lenders meaning we can shop business car loan offers for you and negotiate to get you the best rate.
How business car finance works
Loan vs lease
The first thing to understand with car finance is that it’s not a single product type.
The first thing to understand with car finance is that it’s not a single product type. You can finance a commercial vehicle either through a business car loan (known as a chattel mortgage) or through a lease.
With a loan you own the car from the start and pay it off over a fixed term, with the vehicle serving as security for the loan. With a lease you have unlimited access to the vehicle but your business does not own it, until you trigger ownership by making a final limp sum payment.
In this guide we’ll mainly focus on business car loans, but we’ll explain some of the ways a lease works differently later on.
Dynamic interest rates
Business car finance rates are dynamic, which means each borrower’s rate will be unique to them.
Business car finance rates are dynamic, which means each borrower’s rate will be unique to them. Lenders determine rates on a case-by-case basis based on the risk involved with the finance applicant.
Your credit score, trading history, revenue, the age of the vehicle and the industry your business operates in are just some of the factors lenders may take into account when assessing our application and determining your rate.
Flexible repayments
Business car loans generally come with flexible repayment options, including your choice of term duration (1-7 years typically).
Business car loans generally come with flexible repayment options, including your choice of term duration (1-7 years typically). You also get the option to make interest only repayments for a period, a repayment schedule to match your cashflow, and the ability to make extra repayments to pay down the loan faster (watch out for break fees).
We’ll discuss your preferences with you in our initial discussion and then tailor our search of business car finance providers to match your needs.
Balloon payment option
Many clients we help with finance for a business vehicle set up the loan with a balloon payment.
Many clients we help with finance for a business vehicle set up the loan with a balloon payment.
What this means is the loan will have a large final (balloon) payment at the end of the finance term. Setting the loan up this way means the initial repayments on the loan will be smaller than they would be without the balloon.
This can be a great option for businesses who want to keep as much cashflow free for other purposes. When the balloon payment is due, many businesses choose to refinance it over a new loan term, assuming the vehicle is still up to it. Alternatively, you could choose to sell the vehicle and use the sale funds to clear the balloon payment.
No deposit required
It’s very rare for a lender to require a deposit on a business car loan, meaning it’s usually possible to finance 100% of the vehicle’s purchase price.
It’s very rare for a lender to require a deposit on a business car loan, meaning it’s usually possible to finance 100% of the vehicle’s purchase price. The exception is usually bad credit borrowers and businesses with a limited trading history who may need to contribute deposit to ensure approval on the loan.
If you finance the vehicle with an unsecured business loan, you may even be able to finance more than 100% of the vehicle cost and use the surplus funds for related costs. We generally recommend borrowers still use a secured loan to cover the vehicle purchase and, if needed, finance the related costs separately – for example, using a line of credit.
Tax deductions available
If you take out a business car loan, there are a number of tax advantages and deductions that may be available to you.
If you take out a business car loan, there are a number of tax advantages and deductions that may be available to you:
- GST credit on the purchase price of the vehicle (up to the relevant cap for the financial year in which the vehicle is purchased)
- You may be able to claim tax deductions on the loan interest, finance fees, vehicle operating costs and depreciations
Talk to your tax advisor to understand which deduction may apply to your business, but remember deductions or credits will only apply on the business use of the vehicle (personal use is not covered).
How to get the best business car loan rate
Business car loan rates generally start from around 6% p.a. and can go up to around 20% p.a. This is a big range, so it’s important to make sure your rate falls on the lower end. Here are some steps to consider if you want to secure the best rate possible on your vehicle finance:
1. Be open minded about lenders
If you only check your rates with the ‘usual suspect’ lenders, you may miss out on lower rates from lesser-known providers. There are dozens of business car loan providers in Australia and competition for you business will be fierce. We’ll help you take full advantage of this.
2. Consider a newish vehicle
Lenders often offer lower rates on newer vehicles. A vehicle that’s under three years old will qualify for the best rates. If it’s under five years old, you should still qualify for a competitive rate.
3. Buy the vehicle from a dealer
You might save some money by buying privately, but if you are financing the purchase, expect to pay a higher rate than you would if you’re buying from a dealer. Dealer sales offer greater protection for the buyer which reduces the lender’s risk.
Applying for a business car loan
Advantages and drawbacks of financing a business vehicle
Advantages
• Improved cashflow
Spreading the cost over time means you don’t have to outlay a large amount upfront, keeping more working capital in your business.
• Faster access to vehicles
Finance allows you to acquire the vehicle sooner, so you can take on new jobs or boost productivity without delay.
• Full ownership and control
You own the vehicle from day one, which gives you complete control over how it’s used, maintained, and modified.
• Potential tax benefits
Some finance costs, including interest and depreciation, may be tax deductible, helping to reduce your overall tax bill.
• Flexible repayment options
Loan terms can often be structured to match your cashflow, with options like balloon payments or seasonal repayments.
Drawbacks
• Higher total cost
You’ll likely pay more over time compared to buying the vehicle outright, due to interest and possible fees.
• Complications with early sale
If you want to sell the vehicle before the loan is paid off, there may be extra steps or penalties involved.
• Personal financial risk
Some lenders may require a personal guarantee, meaning your own assets could be at risk if the business can’t repay the loan.
Learn more about business car finance
Alternative forms of business car finance
An operating lease is a rental agreement with a short-to-medium-term lifespan (usually 1-5 years). Leasing tends to be more expensive than most other forms of vehicle finance but offers the crucial advantage of flexibility.
As with a hire purchase agreement, the finance company will purchase the vehicle on your behalf and then rent it to you.
The key difference is that you will not own the car at the end of the lease and will generally have the option to upgrade regularly rather than being stuck at the end of the contract with an ageing vehicle that no longer suits your business needs.
Most operating lease agreements include a provision for maintenance. The cost of this service will be built into your lease payments, which can substantially increase the cost of your finance — but allows you to avoid the risk of unexpected maintenance costs if something goes wrong with your vehicle.
Pay close attention to the terms of your lease, as the lender may impose mileage restrictions or other restrictive terms that could interfere with how you use your business vehicles.
Generally, an operating lease only covers part of an asset's useful life. When the contract ends, the lender will take possession of the vehicle and sell it or lease it to another business.
Pros
- No upfront deposit required
- Lease payments are tax deductible as a business expense
- Removes the financial liability of owning a vehicle
- You can upgrade your vehicle within the lease period or at the end
Cons
- You never own the vehicle
- You can’t claim a tax deduction for depreciation as your business doesn’t own the asset
- Contract terms are usually fixed, which means you have to continue making payments even if you don’t use the vehicle
- An operating lease can be expensive, especially if servicing and maintenance are included
A finance lease is similar to an operating lease, whereby the finance company will buy the vehicle on your behalf and lease it to you in exchange for regular repayments.
However, at the end of the finance lease, you can usually buy the car for an agreed residual payment, unlike with an operating lease where the lender will take back the vehicle.
A finance lease usually has fixed-rate payments, which will not increase with inflation over the contract term.
You can expect to pay close to the car's full value over the course of your lease, making it an expensive option. However, you can normally claim a tax deduction for your lease payments.
Pros
- Can be easier to access than business loans
- Lease payments are generally tax deductible
- You’ll buy the vehicle for a pre-agreed price at the end of the contract and have the potential to profit if its market value is higher
- No upfront deposit required
Cons
- You don’t own the vehicle during the lease term, but will be responsible for maintenance
- You’ll have to record the finance lease on your balance sheet as if it was a business loan
- If you no longer need the asset at the end of the lease, you will still be responsible for disposing of it
- Leasing is among the most expensive forms of business car finance
An unsecured business loan can be used for any business purpose, including buying vehicles. The main advantage of taking out an unsecured business loan is that you don’t have to provide collateral for the finance, which makes the process quick and easy, although your interest will be higher.
Taking out a loan to finance your business car means you’ll own the vehicle outright and be able to dispose of it as you wish at any time. You can generally choose the term of your loan (usually between 1-5 years) and may be able to agree on a repayment schedule that matches your cashflow.
Business loans are often more economical than other forms of car finance, although rates and supplementary charges do vary widely and it’s important to compare the full cost of the loan, not just the advertised interest rate.
Depending on your tax position, you can generally claim the interest you pay on your business loan as a tax deduction. You will have to record your loan on your balance sheet, which could impact your ability to borrow for other purposes. In addition, alternative lenders may still be able to help if you have bad credit.
Pros
- You’ll own the vehicle from the outset and may be able to claim a tax deduction for depreciation
- No deposit or collateral needed
- Flexible term and repayment schedules
- Less paperwork involved than other types of car finance
Cons
- Unsecured car finance can be more expensive than secured car finance
- Some lenders have hidden charges and impose restrictive terms
- The loan must be recorded on your balance sheet
- You’ll generally need a good business credit rating
More FAQs
Yes the interest and any fees on a business car loan may be tax deductible. You may also qualify for a tax deduction on vehicle running costs like fuel and insurance, as well as depreciation.
Just bear in mind that only business use of the vehicle will be tax deductible. If you also use the vehicle for personal use, that portion of its use will not be deductible.
Business car finance interest rates range from 6-20% p.a., depending on the eg of the vehicle, the contract term and your business financials and trading history. Always pay attention to what fees are also applicable, as these can add up quickly.
You can usually get approved for business car finance within a few days and in some cases within 24 hours. It will depend on the type of vehicle you want to finance and your specific finance agreement.
Business car finance is designed to buy vehicles used primarily for business purposes (at least half the time). You can’t use business car finance to buy a personal vehicle and vice versa.