Equipment Finance
Equipment and asset finance covers a large range of items which can be for personal or business use. Some examples where equipment and asset finance is applicable includes:
- Personal car, boat, campervan
- Work vehicle, plant or equipment
- Specialist equipment for business operations
Why would you consider using our equipment finance solutions? It's the same reason as using a broker for a home loan, we have access to a range of lenders which improves competition and enables us to find a product which best suits your needs. If you obtain finance from the supplier who sold you the equipment, you are only offerred one product, one rate and generally it will be higher than what we can offer simply due to our panel of lenders providing more options.
There are a range of equipment and asset finance products and each is generally designed for a different purpose or need.
The main types of equipment finance include:
Generally, when equipment and asset finance is being provided, it is based of the life security value and the expected valuable life of the security.
For example, a new car worth $30,000 may be financed for up to 5 years however a longer finance term would result in the vehicle value diminishing to a point where the lender may not be able to recover their funds if the vehicle needs to be sold.
The equipment finance may involve a balloon payment at the end of the term (i.e. for the $30,000 new vehicle, 36 monthly repayments of $400 per month equals $14,400 so the balloon would be approx. $15,600 plus interest on the equipment finance agreement).
Interest rates can vary so it is very important that you use a broker who is going to recommend the most suitable finance and product to match your needs. Applying for equipment finance at a dealership is the same as walking into a bank and applying for a home loan……. the options are limited and interest rates are set.
Chattel Mortgages
A Chattel Mortgage allows a person to purchase a vehicle and take ownership of the security at the time of purchase.
The lender then takes a "mortgage" over the vehicle as security for the loan. They achieve this by registering their interest over it with the PPSR (Personal Property Securities Register).
Once all repayments have been made, the security interest is removed giving the customer clear title to the vehicle.
Chattel Mortgages usually range from 12 to 60 months (one to five years), the interest rate is generally fixed during the term and depending on the intended use (i.e. business vehicle) there may be tax deductions and GST benefits.
Chattel Mortgage interest is calculated at day one and added to the amount borrowed for you to start paying down the loan. If you payout early, the penalty is calculated on the remaining unpaid interest and can be hefty if paid off in the first 1-3 years of a 5 year term. There is no benefit in paying any extra during the term as it will not save on interest.
Any business finance should be discussed with an accountant to ensure all tax and GST elements are understood.
Novated Leases
A Novated Lease is an agreement between an employee, the employer and a finance company. The employee is then able to repay the costs of the vehicle using pre-tax dollars.
This is of great benefit because if you are paying a lease with post-tax dollars, the vehicle effectively is costing you more.
For example, if you earn $50,000 p.a. (taxable income) then your post-tax income is $42,200 (calculated using ATO tax calculators at time of publishing). If you then pay $400 per month for a $30,000 vehicle then $4,800 per year comes out of your post-tax income leaving you with $37,400.
However, if you pay with pre-tax money, your taxable income reduces by $4,800 and comes down to $45,200. Post tax income on this amount is $38,963 which puts $1,563 back into your pocket.
At the end of the Novated Lease term, you also own the vehicle.
Prior to commencing with this type of lease, you should confirm with your employer and an accountant how this type of finance impacts your income and tax.
Asset Finance
Asset Finance enables the customer to have the use of their business equipment while the financier retains actual ownership of the equipment. The financier purchases the equipment for a customer who then repays the financier monthly for the term of the lease.
Once the lease term expires, the customer has the option to pay a residual and take ownership of the vehicle.
At the end of the lease the customer can either pay a balloon on the lease and take ownership of the equipment, sell the equipment or refinance the balloon and continue the lease.
The interest rate is generally fixed during the term and for the business, the equipment is not treated as an asset or liability in the balance sheet. There are tax deduction benefits and due to the financier purchasing the equipment, only the equipment's price exclusive of GST is financed which can low the monthly payments.
Any business finance should be discussed with an accountant to ensure all tax and GST elements are understood.
To submit an enquiry and discuss your finance needs with our team, please complete our contact us form and a representative will be in contact with you shortly.
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