Taking out a car loan is always a big decision, but the stakes are even higher when you’re self-employed.
In this blog, we cover the different loan options available and the factors to consider before making a business auto loan financing decision.
Self-employed business car loan types
Consumer car loan
While consumer car loans aren’t specifically designed for self-employed people, they’re a great option if you want to purchase a car that’s mainly for personal use but also for your business. These loans can be secured or unsecured, fixed or variable, with different terms and conditions. Ultimately, the variety of options available will depend on your credit history and financial situation.
If you’re claiming tax deductions for any work-related motor vehicle expenses, make sure to separate private from business use.
Business car loan
In contrast, a business car loan is more appropriate if you plan to use the vehicle mainly for business purposes (at least 51% of the usage). A common example is a chattel mortgage. In this scenario, the loan is secured by the car itself, much like a home mortgage.
If you’re using the car exclusively for work, you may be able to claim a tax deduction for all eligible expenses, including interest on the car finance business loan. However, if you also use the vehicle privately, no matter how often, ensure that you account for this and only claim deductions for work-related expenditure.
Low doc loan
As the name suggests, low doc loans require less documentation than standard lending arrangements. They’re specifically designed for small business owners and self-employed people who may not have the usual financial documents and paperwork (e.g. payslips) necessary for a business car loan application.
Generally speaking, you’ll need to provide the following information:
- Proof of identity
- Proof of income
- Evidence of genuine savings
Because low doc loans are considered higher risk, lenders often charge higher business auto loan rates. But that doesn’t mean great deals aren’t available, especially if you have a good credit history. For example, Yes Loans provides access to lenders that offer competitive low doc loans to ABN holders, subject to meeting their approval criteria.
Commercial hire purchase
In a commercial hire purchase (CHP), the lender grants you use and custody of the motor vehicle on the basis that you continue to meet the requirements of a contractually stated payment plan. During this period, the lender maintains ownership of the car. Once you have paid off the vehicle price, plus interest, you will become the vehicle’s legal owner.
Picking the right business vehicle finance option for you
Consider the following questions before making your decision:
- How much documentation do I have that can support my application?
- What kind of interest rate can I afford?
- How healthy is my credit history?
- Is flexibility important to me?
- Do I have savings I can rely on during quieter working periods?
Answering these questions will help you better understand your financial situation. Once you know where you stand, you can explore different business car loan options and make an informed decision that meets your vehicle needs without compromising your financial well-being.
Best business auto loans with Yes Loans
Are you self-employed and considering Perth car finance? Our expert team is here to help!
Apply for a business car loan with Yes Loans today – we say YES more often.
