This loan agreement is when a financier agrees to purchase a vehicle on behalf of a borrower and then draws up an agreement to hire the vehicle back to the customer with set terms, conditions and payment schedules. The vehicle is not owned by the customer but they are free to use it for business purposes over the course of the lease.
This type of loan suits all kinds of individuals including owners of sole trading business, partnerships and trading companies. Hire purchase loans also benefit people who use their vehicle predominantly for business purposes.
How Does a Hire Purchase Work?
The financier secures and pays for a vehicle on behalf of a customer with an offer to hire it back to them for an agreed time frame. During the hire term the customer does not own the vehicle and remains a leaser only, however they are free to use the car as they see fit.
When the leasing agreement comes to an end a total price including interest, minus any residual costs, are paid to the financier before the leaser takes full ownership.
Benefits of a Hire Purchase
Due to hire purchase terms stating that the finance be secured against the vehicle itself the customer is able to be offered fixed and lower interest rates. Deposits can also be used to minimise the regular, balloon or residual payment.
- Flexible contract terms ranging from 24 to 60 months
- A residual value/balloon amount is offered
- Fixed interest rates
- Repayments are fixed for the entire hire term
- Associated costs are upfront
- Deposits are encouraged
- Tax deductions for interest and depreciation on the vehicle are possible
- GST is not charged on either the monthly rental payment of residual value
- If business is GST registered you can claim the GST on the vehicle purchase price
- Lower interest rates as finance is secured against the vehicle
Tax Information for a Hire Purchase
The use of the vehicle for business purposes allows the leaser to claim associated expenses through their business. This means that there are some distinct advantages for the customer to increase affordability of purchasing the vehicle for business purposes.
- Businesses who use the accrual method for GST can claim the GST component of the vehicle purchase price on the following BAS Statement
- Businesses who use the cash method for GST can claim the GST as equal instalments over the term of the agreement
- GST is not charged on either the repayments or the residual amount
- Interest portion of repayments can be claimed
- Depreciation on the vehicle can be claimed
- Hire purchase financial commitments are listed as capital expenditure on your balance sheet
Call one of experience financial consultants on 1300 361 360. Or you can use the quick quote form online and one of our consultants will be in contact with you very shortly.