Commercial Hire Purchase (CHP)
The financier purchases the car and hires the car to the customer. When the final payment is made, ownership of the car passes to the customer.
Benefits to Business
- Security is usually the asset itself - preserving access to working capital credit lines.
- No capital outlay - no upfront deposit needed, which means you can use your working capital for other core business needs.
- Equity - by taking equity in the car through a trade in or deposit you can reduce the amount funded and therefore the total interest paid.
- Tailoring to match your cash flow - repayment cycles aligned with your anticipated cash flow.
- Simplicity - instalments will be automatically debited from your nominated business account.
- Balloon payments - a lump sum payment at the end of the contract that settles the debt can be arranged for approved customers. This enables customers to pay a lower monthly installment during the term of the agreement, and then pay a balloon at the end of the term.
Goods and Services Tax (GST)
- The financier claims the Input Tax Credit (ITC) when the car is purchased from the supplier.
- The financier then issues a tax invoice (including GST) to the customer (the Commercial Hire Purchase agreement).
- If the customer holds an ABN and accounts on an accrual basis, the customer may be able to claim the ITC upfront. Otherwise the ITC may be claimed over the life of the agreement.
- No GST is payable on repayments, any balloon or terms charges.
- From a taxation perspective the customer is treated as having acquired the car from the financier via a loan at the commencement of the agreement. However, full title of the car does not pass to the customer until final payment is made.
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Business Car Finance
- Car Lease (Finance Lease)
- Commercial Hire Purchase (CHP)
- Chattel Mortgage
- Novated Lease (Finance Only)
- Novated Lease (Fully Maintained)