In Mackay and the Bowen Basin, a ute is often a work tool as much as a car. Contractors need fitted-out vehicles, trades need trailers and machinery, and families still need something to get the kids to school. How you finance it can affect your cash flow, who owns the asset and your borrowing power for a home loan later.
Here's how the main options compare. The tax side of each option is a question for your accountant, who can advise.
Start with how the asset will be used
The first question is whether the vehicle or equipment is mainly for business or mainly for personal use. That affects which products you can use and how a lender will assess the application. If it's a mix, be honest about the split, because lenders will ask and your accountant will need to know.
Chattel mortgage
A chattel mortgage is a common way for businesses to finance vehicles and equipment. In general, you own the asset from the start, and the lender holds a mortgage over it as security until the loan is repaid.
- Usually for assets used mainly for business
- Repayments can often be structured with or without a balloon payment at the end
- Because you own it, you can generally modify or fit out the asset, subject to the loan terms
How a chattel mortgage is treated for GST and income tax depends on your business. Your accountant can advise.
Leases
With a lease, the financier owns the asset. You pay to use it for a set period. As the ATO describes it, the party granting the lease is the owner of the goods, and if you want to own the asset at the end, buying it is a separate transaction.
- Leases often include a residual value you can pay at the end to buy the asset
- Because you don't own it during the term, there may be limits on modifications
- Lease terms vary a lot between financiers, so read the end-of-term options carefully
Hire purchase is a related product. The ATO notes that under hire purchase you don't own the goods until you've paid the final instalment.
Novated leases, where an employer packages a car lease through your salary, are a different arrangement again. If your employer offers one, your employer and accountant can explain how it works for you.
Personal or car loan
For a car mainly used privately, a consumer car loan or personal loan is the usual path. Moneysmart notes that most car loans are secured, with the car typically used as security. Unsecured loans don't use the car as security, but they generally carry a higher interest rate and you can usually borrow less.
- You own the car, and a secured loan has the car as security
- Lenders assess your personal income and expenses
- Check the application fee, monthly fees and any fees for extra repayments or paying out early
Balloon payments: lower repayments, bigger finish
A balloon, or residual, lets you make smaller regular repayments and pay a lump sum at the end. Moneysmart warns that the lump sum plus interest raises the total cost, and you need a plan to pay it when it's due, or you may need another loan.
Illustrative example: on a $60,000 ute, a 30% balloon means $18,000 is still owing at the end of the term. That could suit you if you plan to trade the ute in and its value covers the balloon. It could hurt if a hard few years on site leave the ute worth less than you owe.
Watch the extras at the dealership
Dealer finance can be convenient. Moneysmart notes that dealers may push add-ons such as loan protection and gap cover, and says these are not good value for money. Comparing finance options before you walk in puts you in a stronger position to negotiate.
Think about your next home loan
Any vehicle or equipment finance you take on counts against your borrowing power when you later apply for a home loan. A higher repayment on a new ute can reduce how much a lender will lend you on a house. If you're planning to buy property in the next year or two, talk to us before you sign up for vehicle finance. See our self-employed home loans page if you run your own business.
Questions to ask before you sign
- Who owns the asset during the term, and at the end?
- Is there a balloon or residual, and how will I pay it?
- What are the total fees, and is there a cost to pay it out early?
- How does this affect my home loan plans?
- What does my accountant say about the tax treatment?
More on our approach is on the commercial and asset finance page.
Talk it through
Whether it's a work ute, a family car or a piece of machinery, call or text us on 0458 773 002 or book a free assessment at our contact page. We'll talk through the options and how each fits with your plans. For most home loans there's no broker fee; any fee is disclosed upfront in our Credit Guide.
Common questions
What's the difference between a chattel mortgage and a lease?
With a chattel mortgage, you generally own the asset from the start and the lender holds security over it. With a lease, the financier owns the asset and you pay to use it, with the option to buy it at the end as a separate transaction.
Is a balloon payment a good idea on a ute?
A balloon lowers your regular repayments but leaves a lump sum to pay at the end, which raises the total cost. It may suit you if you have a clear plan to pay or refinance it.
Which option is better for tax?
That depends on your business and how the asset is used. Your accountant can advise on the tax treatment of each option.
Will car finance affect my home loan?
Yes. Lenders count your vehicle and equipment repayments when they assess how much you can borrow, so talk to your broker before taking on new finance if you plan to buy property.
Sources
This guide is general information only and doesn't take into account your objectives, financial situation or needs. Talk to us about your circumstances before acting on it. Related: Commercial & asset finance.