How To Finance A Vehicle If You're Self-Employed

If you’re self-employed and looking to finance a car, there are a number of options available to you. We’ll break down your best car finance options to help you make an informed decision when it comes to consumer and commercial car finance. Read on for our guide to car finance for sole traders.

Finance options

If you’re a sole trader looking to finance a car, you have a wealth of options available to you, because you’re able to access both commercial and consumer car finance options. 

Cash

The most obvious and straightforward way to finance a vehicle is using cash. This will end up being the cheapest option long term as you won’t need to pay any interest or fees. However, it’s also not a financially viable option for many drivers. 

Secured car loan

One of our most popular consumer car loan products is a secured car loan. With this type of loan, you’ll use your new vehicle as collateral against the loan. You’ll be able to access a lower interest rate, because you’re giving your lender the security that, if you’re unable to meet your repayments, they can repossess the car in order to reclaim their funds. Secured car loans are normally used for new cars.

Unsecured car loan

With an unsecured car loan, your car won’t be used as security against the loan. This means you’ll have to pay a higher interest rate, as you’re not giving your lender that same security. Additionally, while the lender won’t be able to immediately repossess your car if you can’t meet your repayments, you might end up facing legal action from the lender. Unsecured loans are best suited to used and older cars. 

Chattel mortgage

A chattel mortgage is a popular type of commercial loan wherein the financier lends money to a borrower in order to purchase a vehicle, and the borrower makes monthly payments (plus interest) back to the lender in order to repay the loan. 

This type of finance product is especially well suited to sole traders, because GST is only applied to the purchase price of the car, meaning that the business can then claim it back on that price upfront. You may also be eligible for the instant asset-write off scheme, which enables businesses to claim the depreciation amount immediately as a tax deduction, as opposed to gradually over a few years. As long as your annual turnover is lower than $500 million, you’ll probably be eligible for the scheme and able to claim deductions for amounts up to $150,000. Read more on the ATO website here.

Learn more: Chattel Mortgage Vs Lease - What’s the difference?

Finance lease

With a finance lease, you’ll be allowed the use of a commercial vehicle while enjoying all the benefits of ownership; but the lender will technically retain ownership over the business car until the end of the loan term when all repayments have been made in full. A finance lease can help you optimise your cash flow management, as it preserves your working capital and fixed payments. You’ll likely be able to claim the whole repayment as a tax deduction. 

Operating lease

Operating leases are used to finance a vehicle for a period of time that is less than its useful life. Additionally, the vehicle is able to be returned to the lessor at the end of the lease period with no additional obligation. It is normally a shorter term lease than other lease options, meaning you’ll be able to upgrade to a new vehicle regularly. The key difference between a finance lease and an operating lease is that with an operating lease, you will not be able to purchase the vehicle during the duration of the lease. 

Commercial hire purchase 

With a hire purchase arrangement, you’ll normally have to make an initial deposit payment and then pay off the rest of the loan balance in instalments. These are normally monthly repayments, but some lenders might give you the option to make weekly or fortnightly payments instead. At the end of the loan period, you will have full ownership over the car.  

Business loan

You also have the option of using standard business finance to fund the purchase of your new business car. Your business finance options might include taking out a line of credit or a term loan.

Learn more: Buying A Vehicle For Your Small Business - 3 Important Things To Consider

Factors to consider

Do you want to retain ownership over the vehicle?

One of the biggest questions you’ll need to ask yourself when considering car finance options is whether you want to end up owning the car. If having the latest technology or the newest model of car is important to you, taking out a lease could be a good move as this will allow you to continually upgrade your vehicle. 

With some finance products, you’ll get ownership over the vehicle as soon as you start making your monthly repayments, but with others you’ll only have ownership at the end of your loan term. In the case of finance leases, you won’t end up owning the vehicle at all. While assessing your options, it’s important to think about whether you are interested in claiming the vehicle as a business asset, as well as which finance option will have the best tax benefits. 

What will you be using the vehicle for?

If you’re taking out a lease, be mindful that there may be some restrictions on things like mileage. So if you’re looking to drive long distances in your business car, then a lease might not be the best move. If you’re worried about overuse, you might want to consider a car loan that will give you a new vehicle at the end of the loan term. 

Before you start shopping for your new car, it’s a good idea to make a checklist of all the features you’re looking for. Because this list will be part of your business plan, you should be sure to update and revise it as your business grows. 

Tax effectiveness

If you’re looking to buy a business car, you’ve probably already considered the tax implications of getting a car lease vs a car loan. Leased assets are generally listed as an operating cost, and are therefore tax deductible. Hire purchase assets, by comparison, are normally listed as an asset on your balance sheet. This means that they are eligible for the instant asset write-off scheme, because hire purchases are viewed in the same way as a stand-alone sale in a tax period. If getting the most tax effective finance option is important to you, we recommend speaking with your accountant. 

Learn more: A Quick Guide On The Most Tax Effective Way To Buy A Car

The future of your business

Finally, it’s crucial that you consult your business plan and think about where your business is heading and how long you’ll require the business vehicle for. It’s important to think not just about what you need in the short term to operate your business, but also your long term goals and what you’ll need to grow your business. Additionally, before taking out a lease or a loan, make sure that you’re in a strong financial position and will be able to meet all of your loan repayments and financial obligations.

Got more car finance questions?

What type of vehicles can I get finance for?

Driva can help you finance almost any type of vehicle. From cars to tractors, and motorbikes to caravans, if it’s got wheels, we can probably finance it!

What documents will I need to apply for a loan?

When you’re applying for a business loan, there are a number of documents you’ll need to have on hand. These include your ABN (Australian Business Number) as well as your recent tax return statements and business financial statements. We’ll let you know if (and why) we require any further documents. 

When should I buy a business car?

A business car might be the right move for you if you:

  • Will be using the vehicle for business purposes more than 50% of the time
  • Are looking to finance a vehicle (or wheeled equipment)
  • Have financing needs that are less than $250,000 per asset

Am I eligible for a car loan?

In order to be eligible for a consumer car loan, you’ll need to be at least 18 years old, an Australian citizen or permanent resident, and hold a valid driver’s licence. In order to qualify for a commercial loan, you’ll also need to be a tax resident of Australia (and have an ABN) and be using your vehicle for business purposes.

Will my credit score affect my loan options?

This depends on which lender you’re looking at, but for many lenders, your credit score will be an important factor when assessing your eligibility and determining your rate. It will be much easier to lease or buy a car if you have a higher credit rating. You will have a much better chance of getting your loan approved, and will also likely receive a lower interest rate.

Summing up

Buying a business car can be a daunting task, but it’s also a really exciting decision and in many cases is crucial to taking your business to the next step! If you’re self employed you have a wealth of options available to you, the hard part is choosing the right one for your business. Whether you decide to take out a secured car loan or a commercial hire purchase agreement, you’ve come to the right place!

To get the loan process started, you’ll just need to provide us with a few details about you, your business and the car you’re looking to buy. From there, our smart finance platform will assess your profile against the eligibility criteria of the 30+ lenders on our panel, and find you the most competitive interest rates that you’re eligible for. Plus, getting these rates will have no impact on your credit score!

Before submitting your application to your preferred lender, we’ll make sure you’re likely to be approved. This helps to speed up the process and protect your credit score (as well as preventing any disappointment!). The approval process tends to take anywhere from 2 hours to 2 days, but times will vary depending on the lender.

If you’ve got any more questions about car finance, feel free to get in touch! Our friendly and dedicated finance team is here to help - give us a call on 1300 755 494 or email us at hello@driva.com.au.

Find your best car loan in 60 secondsUse our free loan matching tool to assess your options.Start Now
Recent Posts

We search far and wide for your best rate, so you don’t have to!

Start Now