Everything you need to know about business car loans

Whether you want to upgrade an old car or purchase a new ute to expand your operations, a business vehicle loan can help you acquire the necessary transportation without draining your finances upfront.

In this guide, we’ll cover everything you need to know: loan types, eligibility, tax considerations, pros and cons, and tips for choosing the right vehicle. Let’s get started.

What is a business car loan?

A business car loan allows you to purchase a vehicle to use for business purposes while spreading the cost out over time. This could be a car, truck, van, or ute, for example.

What can I use a business vehicle loan for?

Business vehicle loans can be used for:

• Upgrading older vehicles
• Purchasing new vehicles
• Expanding your business
• Reducing the amount of cash spent on high-value items

What’s the difference between a business car loan and a personal car loan?

A business car loan is used to finance a vehicle that you’ll use mainly for business purposes; it typically allows for tax deductions and comes with flexible repayment terms. 

A personal car loan helps you buy a vehicle for private use, has no tax benefits, and usually features fixed repayments over a set term.

Who can access business vehicle finance in Australia?

Generally, sole traders, companies, partnerships, and trusts can take out a business car loan, as long as the vehicle is used for business purposes more than 50% of the time. You also need to have an ABN and be an Australian citizen or permanent resident.

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What are the different types of business car finance?

Chattel mortgage

With a chattel mortgage, you own the car from day one and use it as security for the loan, which means you don’t have to put existing assets at risk. Plus, you can often borrow up to 100% of the asset value.

If repayments slip, the lender could sell the vehicle to recover the loan, but this is usually done as a last resort.

Hire-purchase

With a hire-purchase agreement, you pay instalments over a set period to borrow the business car. Once you pay it off, you own it. Payments are fixed, which makes budgeting easier, but the total cost may end up being higher than taking out a loan.

Operating lease

An operating lease is essentially a rental arrangement for a business car. The lender owns it, and you pay to use it for a set period of time. At the end of the lease, you typically return the car (although this can vary depending on your contract).

Finance lease

A finance lease is a "lease-to-own" arrangement: the lender owns the car, and you rent it for an agreed-upon period. You may be able to buy it at the end of the term for a small fee, but this isn’t guaranteed. 

Novated lease

A novated lease is a three-way agreement between you, an employee, and a lender. It allows your staff to drive a car, while your business handles all running costs.

This can make salary packaging attractive, helping you retain talent and make vehicle management simpler.

What’s the eligibility criteria for business vehicle finance?

To qualify for a business car loan in Australia, your business generally needs to meet a few key requirements:

• A trading history of 6-12 months minimum
• An ABN (GST registration isn’t mandatory but can help)
• A healthy credit score
• Proof that you’ll use the car primarily for business purposes
• Up-to-date paperwork to show that your business is stable or growing and that your cash flow is strong enough to make repayments comfortably

In terms of paperwork, at a minimum, you’ll need:

• Proof of ID
• Proof of residence
• Recent tax returns
• Bank statements
• Business activity statements (BAS)
• Other financial docs like balance sheets and cash flow statements

Do I need a director’s guarantee to get a business vehicle loan?

Depending on the lender, you may need a director’s guarantee, particularly if you’re applying as a director/owner of a company. 

Put simply, it’s a safety net for the lender. If your business defaults, you could be asked to cover the loan personally.

If your business keeps up with repayments, you may never be affected by the guarantee. But it’s important you understand what you’re signing up for, so we recommend speaking to a lawyer to see exactly how a guarantee would affect you.

How do I choose the right vehicle for my business?

The right commercial vehicle for your business will depend on things like your business needs, fuel type, efficiency, and resale value.

• Business needs. A construction business may need a ute to move materials, whereas corporate transport services might prefer a high-end sedan, and a cafe owner could need a food truck to take their business anywhere. Consider your goals and everyday operations here.
• Fuel type. There are 3 main options here: petrol, diesel, and hybrid or electric. Petrol is cheaper to buy and good for short trips but can cost more over time. Diesel is more fuel efficient but is pricier upfront. Hybrid and EV cars are eco-friendly with lower running costs and may get tax incentives but have higher purchase prices.
• Efficiency. Consider how much fuel or energy the vehicle uses in your typical operations. A car with good efficiency reduces running costs over time.
• Depreciation and resale value. Depreciation is how much value your car loses over its lifespan. It directly impacts your total cost of ownership and how much cash you’ll get back when you sell or trade it in (aka, its resale value).

Should I get a new or used car for my business?

A new car comes with the latest safety and tech features, predictable maintenance costs, and lower risk of mechanical issues, but it is more expensive and depreciates faster in the first few years.

A used vehicle is cheaper, the resale value is often stronger, and you may even find a “near-new” car with comparable technology. However, it may have a limited warranty or require additional servicing, and you need to pay extra attention to condition and mileage.

Our tip? Go new if you want peace of mind, minimal maintenance, and the latest tech; go used if you want to save upfront costs, want slower depreciation, and don’t mind spending some time inspecting the car’s condition.

What are the benefits of getting a business car loan?

• Keep cash flowing. Spread the cost of the vehicle over time and free up funds for other areas, like marketing, inventory, or day-to-day expenses.
• Existing debts are less of a hurdle. With many car loans, the vehicle acts as collateral, so there's less risk involved. Your lender will check your finances, but the vehicle itself does most of the heavy lifting.
• Tax perks available. You may qualify for tax benefits like depreciation or interest deductions [1]. There are also eco-friendly incentives for electric or hybrid models [2].
• Interest rates are often lower. Since business car loans are secured, they present a lower risk for lenders, so you often pay less.
• Trade up smart. If you already own a business vehicle, you may be able to sell or trade it in to help finance the new one—and use it as a down payment or to reduce the loan amount.

What are the potential risks of getting a business car loan?

• Stricter terms. Secured loans typically have firmer payment terms because of the higher value of the loan and the collateral at stake.
• Early payout fees. If you choose to settle your loan ahead of schedule, you may have to pay a fee to make up for the interest the lender forgoes.
• Hidden charges. Business car loans sometimes come with additional charges (like origination, banking, and maintenance fees) that make them more expensive than you anticipated [3]. 
• Depreciation risk. If your vehicle loses value faster than expected, your loan balance may end up exceeding its market value [4].

What are the terms of a business car loan?

Your loan terms spell out the important stuff—deposit, term length, interest rate, and repayment schedule—so you know exactly what to expect.

Deposit

Many lenders ask for a deposit, but the exact amount can vary. Usually, a large deposit means lower repayments and less interest to pay over the life of the loan. 

If you have strong financials, some lenders may offer no-deposit options, but you’ll typically pay more interest overall.

Loan term

Business car loans in Australia can run for 3 months to 7 years, depending on how old the vehicle is, how much it is worth, and your business’s financial position.

• Shorter terms = higher repayments but less total interest.
• Longer terms = lower repayments but more interest over time.

Some lenders let you include a balloon payment at the end of the term, a larger lump sum that reduces your monthly payments.

Interest rates

Your interest rate depends on things like your credit score, the type of vehicle, and whether it’s secured (but don’t worry, Valiant helps you get the best deal).

Repayments

Repayments are usually monthly, though some lenders also offer fortnightly or weekly options. As for how much you’ll need to pay, it is calculated based on your loan amount, interest rate, term length, and deposit/balloon structure.

What tax considerations should I know when financing a business vehicle?

When you buy a vehicle for your business, there are a few tax rules to be aware of in Australia:

• Depreciation. You can claim depreciation as a tax deduction and reduce your taxable income.
• Interest. The business-use portion of interest on your loan may also be tax-deductible.
• Running costs. Expenses like fuel, insurance, registration, and maintenance are often deductible. Just make sure you keep all relevant docs to back up your claims (think receipts and invoices).
• Fringe benefits tax (FBT). If you or your staff use the vehicle for personal travel, you may need to pay FBT, although there are exceptions for certain electric cars [2].
• GST. If your business is GST-registered, you may be able to claim back the GST on the purchase price of the vehicle and even some running costs.

How much can I borrow for a business car loan?

This will depend on factors like your lender's policy, your creditworthiness, your revenue and cash flow, and your business plan. With Valiant, though, the minimum loan amount is $5,000.

How do I apply for business vehicle finance?

1. Determine your business needs. Based on this, decide what type of vehicle you need.
2. Gather your financial statements. Make sure everything's ready and up to date.
3. Research and assess lender options. Pay close attention to loan terms, features, and those hidden fees we mentioned before.
4. Prepare and submit your application. Different lenders will have different criteria, so what this step entails will vary depending on who you opt for.
5. Examine the loan terms. If approved, carefully review the loan agreement to avoid any unpleasant surprises down the line.
6. Formalise the agreement. Once you're happy with the agreement, sign it to receive the funds and proceed with the purchase of the vehicle.

This application process can be a lot to get your head around. Good news: we make it simple and take care of the tricky bits for you.

Our platform compares finance from over 90 banks and non-bank lenders, with a wide range of loan products to choose from. 

From there, we match you with the ones that work for your needs and current financials. We handle the application process and settle funding on your behalf, so you get money exactly when you need it. Easy as. Get in touch today.

Is it better to lease or buy a vehicle for my business?

There are pros and cons to both leasing and financing a business car. With leasing, you don’t need a down payment or security, and the repayments are lower than if you were to get a loan. Plus, vehicle lease payments are typically tax deductible.

However, you’ll have mileage caps (and hefty charges if you go over them).

If you decide to get a loan, on the other hand, you’ll end up saving money in the long run, since your repayments are going towards an asset you’ll later own.

Buying gives you freedom, too: you control the vehicle, and you use it your way—no limits, no compromises. But you may need a down payment, and maintenance is on you.

If you're unsure whether to buy or lease your business car, a lending expert can help find a solution that works for you at a great rate. Chat to one for free today.

Can I upgrade my vehicle before the loan ends?

If you have a chattel mortgage or hire purchase, where you own the vehicle, you can sell or trade it in at any time (but you will need to pay out the remaining loan balance before taking on a new one).

If you have a finance lease or operating lease, where the lender owns the asset, you may have to pay early termination fees in order to upgrade your vehicle mid-loan. Have a look at your contract and check if you can refinance or transfer the lease.

If you have a novated lease, it will all depend on your agreement. You may be able to swap the vehicle, but costs and tax implications can apply.

Our biggest tip is: chat to your lender before you make any changes so you know all your options and any extra costs.