A hire purchase is a financial product offered not only to companies but also to partners and sole traders. This commercial product is also suitable for businesses that use an Accruals basis to account for GST. A hire purchase is meant for individuals who want to use the selected vehicle for business purposes. Listed below are some more facts that will help you understand, what is a hire purchase?
When a customer opts for this commercial product, the lender gives the customer the money to buy the vehicle and the lender then hires back the vehicle to the customer. In this type of agreement, the customer is allowed to use the vehicle while the contract is valid, however till the end of the contract, the customer does not get ownership rights of the car.
To get ownership rights of the selected vehicle, the customer has to pay back the lender the principle amount and the interest amount. The interest amount charged for commercial hire purchases varies depending on a few factors. Most lenders offer online quotes to help customers understand how much they will have to pay if they opt for this commercial product.
There are many benefits of opting for a commercial purchase, these benefits include that the customer can use trade ins or cash as deposits. Other benefits include, fixed monthly repayments for a fixed tenure and flexible contract tenures. In most cases, customers are offered a fixed interest rate which is affordable.
There are a few tax implications of opting for this type of commercial financial product. One of these implications is that the customer can get tax deductions if he uses the car primarily for business related purposes. In addition, GST is not charged on both the monthly rental and residual amount. Customers who are registered for GST may also be eligible to claim the GST in the car’s price.
Buyers should remember two facts when they are trying to understanding what is a hire purchase. The first fact is that, the lender will be securing the given amount against the vehicle hence most lenders offer a lower interest rate compared to unsecured loans. The second fact is that, since the loan is secured, the buyer has to pay back the principle amount and interest amount in time to avoid confiscation of the vehicle.
Buyers should note that there are definitely many benefits of opting for a hire purchase however, this type of financial product is not meant for employees who want to hire cars. Employees who are interested to hire cars may want to consider opting for novated lease contracts. Another related financial product is the Chattel mortgage and this product offers significant benefits as well.