What is a Commercial Hire Purchase?
A commercial hire purchase arrangement allows you to start making monthly instalments towards the purchase of a vehicle, while being able to use the vehicle immediately for business purposes. This arrangement allows for a more manageable expenditure and also offers the possibility of tax deductions for your business.
Through a commercial hire purchase (also known as corporate hire purchase, hire purchase, or offer to hire) agreement, you can hire a vehicle from a financier in return for a fixed monthly repayment over an agreed period of time. The financier purchases the car on your behalf and hires it to you for a set timeframe during which you can use the vehicle, but you are not the owner. Ownership remains with the financier until the term of payments is completed and the total price of the vehicle and the interest charges have been paid. At this point, ownership of the vehicle automatically transfers to you.
This type of arrangement makes sense for those who use their vehicle mostly for business purposes. It can be a good option for business owners who do not want to commit significant funds to buying a vehicle upfront, instead making manageable monthly payments that can often be adjusted to business circumstances.
How Does The Commercial Higher Purchase Work
Commercial hire purchase is aimed at customers who will mainly use their vehicle for business purposes. These may include sole traders, partnerships, and companies. A financier purchases the vehicle for you and hires it back to you in return for a set number of installment payments, after which you become the owner of the vehicle.
Some key commercial hire purchase points to consider are as follows:
As commercial hire purchase terms and conditions can vary from lender to lender, so it is important to understand what your options are before you apply.
Find out the degree of repayment flexibility and whether it will be possible to adjust payments according to your cash flow. Lenders may offer the possibility of weekly, monthly, quarterly, yearly or structured payments (meaning that payment dates are fixed for specified times of the year).
Compare the interest rates offered by different lenders, as this will have an impact on the final cost of the vehicle to you. Find out if a deposit is required and if so whether a trade-in vehicle can be used instead. Ask about different loan features and assess which are most suitable for your business requirements and capacities.
Get full details of the fees that you may be liable for with different lenders.
Commercial Hire Purchase Interest Rates and Fees
Interest rates are generally low, as the vehicle is used as security on the loan. There can be additional fees such as establishment fees, which may range from $0 to $350.
Vehicles acquired through commercial hire purchase must be used mainly for business purposes. Hire purchase agreements are granted mainly to the following.
How To Apply For a Commercial Hire Purchase
You are eligible to apply for a commercial hire purchase if the vehicle will be mostly used for business or income generating purposes, whether you are an individual, a sole trader, a company, trust, ABN holder, or an employee who receives a vehicle allowance.
Once you have compared and contrasted the details of the offerings from different lenders, and selected the arrangement most suited to you, loan applications may be made either online or in person. You will be required to complete an application form and provide personal and financial details.
There will be a discussion about the specific vehicle you wish to finance, in particular its age and cost and the deposit/residual options that would be workable for you and your business if you decide to go for this option.
Advice, Tips, and Considerations
Positive advantages of a commercial hire purchase include:
Commercial Higher Purchase FAQs
Common frequently asked questions. Of course, you are welcome to contact us any time on 1300 66 12 11.
What are the benefits of a commercial hire purchase?
Is a commercial hire purchase the right option for my business?
You may apply for a commercial hire purchase as a business or as an individual, as long as the vehicle will be used mainly for business purposes.
If you are registered for GST, this is a good option as you can claim the GST as an input tax credit. In addition you can claim GST on interest charged over the duration of the hire purchase agreement and on depreciation. Businesses using the cash method of accounting can claim GST in equal instalments over the duration of the agreement. Businesses using the accrual method can claim the GST on the purchase price of the vehicle. Monthly and residual payments are not charged GST.
What are the alternatives to a commercial hire purchase?
Employees can choose from alternative options such as a car loan, a chattel mortgage, and a novated lease – these can all be cost-effective solutions for your vehicle requirements. Other than this, businesses may have the alternative options of car leases or chattel mortgages.may