Women In The Black

The Best Way For Self-Employed People To Finance A Car

The Best Way For Self-Employed People To Finance A Car

By Shaun McGowan

The very first question that needs to be asked for self-employed borrowers is “what will be the purpose of the car being purchased?”

Will the car be used predominantly for business use? Or, will the car be used predominantly for personal use?

Business Use

There are a few different products available for business use car loans, which may best suit each business differently, so it is recommended to get sound professional accounting advice by someone who is qualified to do so, such as your own accountant.

The available business use car loan products available are Chattel Mortgage, Commercial Hire Purchase and Lease Agreements. Each product has its own benefits and downfalls, but the basics are:-

  • A Chattel Mortgage is where the financier advances the funds to the borrower to purchase the car, where the lender will take a charge (mortgage) over that car. The vehicle is invoiced to the borrower allowing them full ownership from purchase.
  • A Commercial Hire Purchase is where the hirer (borrower) pays the financier instalments to hire the car, whilst obtaining ownership once all outstanding monies have been paid as per contract. The car is invoiced to the financier.
  • A Lease Agreement is where the Lessor (financier) purchases the car and allows usage to the Lessee (borrower) whilst the Lessee pays rentals to the Lessor. The car is invoiced to the Lessor and remains ownership of the Lessor’s at all times.
Personal Use

When financing a car that is being used for personal use, the loan type is that of a Consumer loan.

When self-employed clients are financing a car via a consumer loan, then all sufficient proof of income is required to be provided for assessment.

This is due to any personal use credit falling under the current National Consumer Credit Protection (“NCCP”) Act.  Anyone assisting in any credit application is required to undertake adequate enquiries into a person’s financial situation to ensure they will not be put into any financial hardship and that the loan product is suitable to that client.

Self Declaration And Low Documentation Car Loans

Some self-employed clients may be able to apply for their car loan without providing any proof of income, but the vehicle must be used for more than 50% business use and the borrower is required to be an ABN holder.

There are certain guidelines in place that will allow for one of these products and they change from lender to lender, so it would be an ideal to speak to someone who understands more about these products in detail.

Shaun McGowan is the co-founder of www.carloans.com.au

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