How does finance work when it comes to purchasing a vehicle?
Not many people are aware that there are several different finance structures available to finance a new car. Buying a car outright is not a good investment – cars depreciate in value by about 15% every year. The trick is to make your vehicle as tax effective as possible.
If you’re a PAYG Employee, then a novated lease will provide around $3,000 in tax savings each year for most people and most vehicles. Alternatively, a consumer car loan is an option.
For small business owners, looking for commercial financing for a car, a chattel mortgage, is a cost-effective option, particularly with the Federal Government extending the asset write off provision until June 2022 – making the purchase of a vehicle a full tax write off.
What’s a good interest rate for a vehicle?
Rates are set by the financier based on the applicant’s credit profile. A good rate for a chattel mortgage is usually between 3.5% and 4.5% (asset age can increase rate). For consumer car loans, rates will also vary significantly depending on the applicant’s credit profile. If you talk to a specialist in this area, they’ll be able to provide sound advice on what the best structure is for you or your business. It is also advisable to chat to your accountant too.
When is it a good idea to changeover your car?
On average, people tend to changeover their vehicle between 3 and 5 years depending on usage. Vehicles travelling over 40,000 km’s per year are considered to be high usage. It depends on the age of the car and if it’s costing you money every year. If it’s used for business purposes, you certainly want a reliable vehicle that’s rarely off the road, hence a newer model makes good business sense.