Commercial Hire Purchase – An Overview
Trucks are important for any commercial business. This is because you will have to move raw materials, finished products from one site to another or from the manufacturing unit to the markets where these goods are again circulated and distributed. Also, the type of vehicle you buy depends as you will be able to decide upon the size of the load that you can expect your truck to carry to your clients.
If you are planning to start your commercial truck business and commercial truck finance is not what you have in mind, there is another option that can opt for. Commercial hire purchase or commonly referred to as CHP is a financial product that has gained immense prominence all over Australia. It is known by different names, the most common ones being Offer to Hire, Corporate Hire Purchase, and Hire Purchase. What is this financial product and how will it impact your business fleet of vehicles?
If you are an entrepreneur and you do not want to invest in commercial trucks in one go, you can opt for CHP. It is basically a financial product wherein, you hire a vehicle from the financier or the financing company against a predetermined or fixed payment that you make every month for a stipulated period of time.
How does CHP work?
In sharp contrast to commercial truck finance, this product works differently. In this an agreement is worked out between the customer and the financing company. The financier will buy the vehicle on behalf of the customer. It then gives it on hire to the customer for him to use against a fixed monthly payment for a certain period of time. The customer can use the vehicle but he cannot be the owner of the vehicle. However, once the tenure of the stipulated time period is over (this is the period when the interest charges, along with the principal amount and any residual charges are fully paid off), the vehicle is owned by the customer.
Benefits of Commercial Hire Purchase
There are several benefits of this type of contract arrangement between a business owner and a financier. These are given below –
- Flexibility of the contract is its prime attraction. This arrangement can be of varying terms ranging between one year and 5 years.
- If you are using the vehicle/truck for commercial purpose, you enjoy certain tax benefits (a deduction on taxes).
- The rate of interest is fixed. As such, you know the amount that you have to pay throughout the tenure of your payment. This is convenient as you can keep aside the amount every month thereby planning your finances in the long run.
- Since the payment is made every month against the vehicle, the rate of interest is low.
- The deposits that you make can be trade-in or in cash.
- You have the option to place residual value on the contract (on the final instalment or balloon).
Tax benefits from Commercial Hire Purchase
If you are opting for CHP, you will have to shell out GST on the vehicle’s purchase price as well as on all the charges and fees. However, the GST can be paid either upfront or when you have paid off the predetermined amount when the tenure of the contract is over.
Apart from the above option, you have several other ways in which you can finance your business vehicles. These are Chattel Mortgage, Novated Lease, Fully Maintained Novated Lease, Low Doc or No Doc Truck finance, bad credit truck loans, and so on. You can explore these avenues depending on your requirement and feasibility.
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