Types of Business Car Loans: Which One is Right for You?

There are so many types of business car loans available that it can be hard to know which one is the right choice for you. Whether you need a single car to make deliveries or a fleet of vehicles to keep your operations running smoothly, each option has its own advantages, and the right choice will depend on how your business operates, how long you need the vehicle for, and what your financial priorities are.

Let’s break down the different types of business car loans so you can make an informed decision.

Chattel Mortgage: A Straightforward Business Loan

A chattel mortgage is one of the most popular business car finance options. It works much like a personal car loan—the lender provides the funds, you buy the car, and the vehicle itself is used as security for the loan. The biggest difference? Because it’s a business loan, you can potentially claim tax benefits, such as GST on the purchase price, interest deductions, and depreciation.

One key advantage of a chattel mortgage is the ability to structure repayments in a way that suits your business. You can choose to make a larger final (balloon) payment, which lowers your monthly repayments and frees up cash flow. This is particularly useful for businesses that prefer lower overheads in the short term but can manage a lump sum payment at the end of the loan.

A chattel mortgage is best for businesses that:

• Want to own the vehicle outright from the start.
• Use the vehicle for business purposes at least 50% of the time.
• Want potential tax benefits, including GST and depreciation claims.
• Prefer flexible repayment structures, including balloon payments.

Hire Purchase: Own the Car at the End of the Term

A hire purchase agreement is similar to a chattel mortgage, but instead of owning the vehicle immediately, your business hires it from the lender until the loan is fully paid. Once the final payment is made—including any residual amount—ownership transfers to your business.

This option is ideal for businesses that want structured repayments with eventual ownership but without an upfront purchase commitment. You can also claim interest repayments and depreciation as tax deductions, making it a cost-effective choice for many businesses.

A hire purchase is a great option if you:

• Want fixed repayments for easy budgeting.
• Prefer to own the vehicle eventually but don’t need immediate ownership.
• Need a tax-effective way to finance a business vehicle.

Novated Lease: A Salary-Sacrificing Option

A novated lease is a finance option that allows businesses to offer employees a car as part of their salary package. The lease payments come directly from the employee’s pre-tax salary, reducing their taxable income and potentially lowering their overall tax bill.

For businesses, novated leasing is a great way to offer a vehicle benefit without taking on the responsibility of car ownership. The agreement is between the employee, the lender, and the employer, meaning that once the employee leaves, the lease can either be transferred to them or terminated.

Novated leases often bundle running costs like fuel, insurance, and servicing into the payments, making it a convenient option for employees who want a fully maintained vehicle without unexpected expenses.

A novated lease is a good fit if you:

• Want to offer employees a tax-effective vehicle benefit.
• Prefer not to own or manage company vehicles.
• Like the idea of fixed payments that include running costs.

Finance Lease: Flexible Repayments, No Upfront Costs

A finance lease works similarly to a hire purchase but with a key difference—you don’t own the vehicle at the end of the term unless you choose to buy it. Instead, you have three options:

1. Buy the vehicle by paying the residual amount.
2. Trade it in for a new one and start a new lease.
3. Return the vehicle and walk away.

Finance leases don’t require an upfront deposit, making them a good choice for businesses wanting to keep their cash reserves intact. Lease payments are also tax-deductible, as they’re considered an operating expense.

A finance lease is ideal for businesses that:

• Want to use vehicles without the commitment of ownership.
• Need flexible end-of-term options.
• Prefer predictable, tax-deductible lease payments.

Operating Lease: The Rental-Style Solution

An operating lease is similar to a finance lease, but without the option to buy at the end of the lease term. Instead, you simply return the vehicle to the lender when the lease is up, making it a great option for businesses that regularly refresh their fleet.

One major benefit of an operating lease is that servicing and maintenance costs can be included in the lease payments, making it easier to budget for vehicle expenses. This type of lease is particularly useful for businesses that use vehicles for short-term projects or industries where vehicles experience high wear and tear.

An operating lease is best for businesses that:

• Need vehicles for a set period without ownership obligations.
• Want maintenance and servicing included in the lease payments.
• Prefer to avoid depreciation and resale hassles.

Choosing the Right Car Loan for Your Business

With so many finance options available, how do you choose the right one? It all comes down to how your business operates and what your financial goals are.

If you want to own the vehicle outright from the start, a chattel mortgage allows you to do just that while potentially offering tax benefits. If you’d prefer structured repayments with eventual ownership, a hire purchase spreads out the cost without requiring a large upfront payment.

Businesses that want flexibility at the end of the term may find a finance lease appealing, as it allows you to buy the vehicle, upgrade to a new one, or return it. If you only need the vehicle for a set period and don’t want to deal with depreciation or resale, an operating lease provides a straightforward solution with predictable costs.

And for businesses looking to offer employees a car as part of their salary package, a novated lease is a tax-effective option that shifts ownership responsibilities to the employee while still providing a valuable work perk. Understanding how each option aligns with your needs will help you secure the best business car loan for your situation.

Trust Credit One for Business Car Finance

At Credit One, we specialise in helping businesses of all sizes find the right car finance solution. Whether you’re considering a chattel mortgage, novated lease, or other business vehicle financing options, our experienced and knowledgeable team are here to support you every step of the way. Use our car loan calculator to get an idea of what your loan will cost, and contact us today to start your journey to car ownership!