Deciding to purchase a car is a big decision. While there are different options and pros and cons associated each, you must consider your circumstances before making a commitment. While most consider the financial factors, it’s important to also consider why your business is purchasing the asset and how long you intend to keep it.
Finance and Purchasing
If you pay for the car either outright or with a loan, you’re buying for keeps. Therefore Whether you take out a car loan or buy the car outright, the vehicle is now your asset.
Generally both options allow you to still claim depreciation and GST (if you are registered and eligible) on your vehicle from acquisition.
If financing, you can generally claim interest on finance (to the extent used for business purposes).
If financing your vehicle this requires less money upfront, meaning your business will have better cash flow as their cash is not tied up in a depreciating asset.
May require a larger upfront deposit, which can affect cash flow.
The car’s value will depreciate over time, making your investment less valuable than at time of purchase.
When buying a car outright, this is a substantial investment and hit to short-term cash flow. If not properly managed, this can lead to cash flow issues over the coming months.
When not properly brokered, hidden fees and charges can mean your financing becomes a lot more costly than meets the eye (tip: make sure you use an experienced and reputable finance broker that will explain and negotiate all fees and charges for you)
If financing, you pay an interest premium on the loan and therefore the vehicle ends up costing more than if purchased outright.
There is a security interest registered against the vehicle until the finance is paid out – this can create some extra costs if selling the vehicle.
Subject to credit checks and finance approval
If you run an eligible small business with a turnover of less than $2 million, look for cars under $20,000 including GST. Your business may then be eligible to claim the entire purchase price of the vehicle under the accelerated depreciation scheme.
Need help understanding the best option for you?
Love the blog? Subscribe to receive it fortnightly.
What do you think?