If you’re a business development manager, sales professional, or someone receiving a car allowance as part of your employment package, understanding your car financing options can make a significant difference in managing your budget and tax benefits. At Residential Lending Group, our team is here to guide you through the various car loan types available, helping you choose the best solution tailored to your financial situation and lifestyle.
Common Car Loan Types Explained
When considering a car loan, it’s important to know the key options that suit professionals who often rely on vehicles for business and personal use. Two popular financing methods are ‘Chattel Mortgages’ and ‘Novated Leases’. Let’s break down how these work and what you should consider.
Chattel Mortgage
A chattel mortgage is a finance option where you, as the borrower, take ownership of the vehicle immediately, while the lender holds a mortgage over the car as security until the loan is repaid. This type of loan is popular among business owners and individuals who want to claim depreciation and interest expenses on their tax returns.
Key Features:
- The vehicle is treated as a business asset.
- You can claim GST credits on the purchase price if registered for GST.
- Interest on the loan and depreciation can be tax-deductible if the vehicle is used for business purposes.
- Once the loan is fully repaid, you own the vehicle outright.
- Typically, a deposit is required, and loan terms can vary.
Considerations:
- The vehicle must be used predominantly for business purposes to maximise tax benefits.
- There may be upfront costs such as stamp duty or registration fees.
Novated Lease
A novated lease is a three-way agreement between you, your employer, and a finance company. Your employer makes lease payments on your behalf from your pre-tax salary, which can reduce your taxable income and potentially increase your take-home pay.
Key Features:
- Lease payments are deducted from your pre-tax salary (salary packaging).
- You can lease a new or used vehicle.
- The lease term typically ranges from 1 to 5 years.
- At the end of the lease, you may have the option to purchase the vehicle, refinance, or return it.
- The lease can include running costs such as fuel, maintenance, and insurance (fully maintained lease).
Considerations:
- The vehicle is not owned by you during the lease term; ownership may transfer if you choose to buy at lease-end.
- Novated leases are generally most beneficial for employees with stable income and who expect to keep the vehicle for the lease duration.
- Salary packaging rules vary between employers and industries, so it’s important to check eligibility.
What About Car Allowances?
If you receive a car allowance instead of a company car, you have more flexibility but also more responsibility. You can choose to purchase a car outright, finance it through a chattel mortgage, or enter into a novated lease. Your choice will affect how you manage tax deductions and cash flow.
Disclaimer: This blog is for informational purposes only and does not constitute financial advice. Lending criteria, terms, and conditions apply. Eligibility and loan terms vary between lenders. You should seek personalised advice from a qualified mortgage broker or financial adviser before making any borrowing decisions.