How to Use Your Car Allowance to Get a Car Loan
How to use your company car allowance to get a car loan
Getting a car allowance through work can be really helpful in getting a car loan. Whether you need a car for your daily work or it’s simply a perk of your company, car allowances are becoming much more popular than 'company cars'.
It’s good to understand what your company car allowance can enable you to do as well as understanding the different types of car loans that are available to you.
Using your car allowance to get a car loan
Your car allowance will be given to you by your employer. You are then responsible for finding and taking out a car loan yourself. If you end your employment with the employer who gave you the initial car allowance, you will still be responsible for the car loan.
You’ll still need to take some time to budget properly before using your company car allowance to get a car loan. The car allowance shouldn’t be used solely on the loan, and you should think carefully about other costs that will need to be covered by it including:
- Repair and maintenance
Make sure you leave enough of your car allowance spare to pay for additional costs rather than spending the entire amount on a more expensive vehicle.
Different types of car loans to consider with a car allowance
There are many different types of car loans, but there are three loans which are the most common. Your options when using your company car allowance include:
1. Chattel mortgage
This type of car loan works really well for people who are likely to be using their car for business purposes more than 50 per cent of the time. You’ll also enjoy lower interest rates with chattel mortgages as the lender has the security of the loan being secured against the car.
With a chattel mortgage, you will own the car from the beginning. Some of the benefits of a chattel mortgage are that you can claim the total GST on the vehicle in your very first BAS statement after buying it. With some other loans, you can only claim over the term of the loan.
You’ll also be able to claim for the depreciation of the car and the interest portion of the loan meaning that there are further tax advantages of using your company car allowance to get a chattel mortgage.
2. Novated lease
This is a great option for those who want to include the running costs of the vehicle into the loan agreement. It’s also an agreement made between three parties: you, your employer, and your lender.
With a novated lease, your employer takes the responsibility of paying for your car (including its running costs) from your pre-tax salary which means your overall taxable income is reduced.
Even if you change employers, you can keep the car that you have from your novated lease.
3. Consumer car loan
You can use your company car allowance to get a consumer loan, leaving you free to choose the vehicle that you want. This will also allow you to own the car at the end of the loan term and it won’t be dependent on whether or not you stay with the same employer.
You should always think carefully about the distance you might travel, how long you want to have the car for and whether you want the maintenance and running costs of the car included in the car loan.
There are fewer tax benefits to a consumer loan, but you do have more flexibility in other areas, and we can find the right loan option for you.
What’s right for you?
When thinking about how to use your car allowance, you really need to think about what is the best option for you. There are a lot of factors that will come into the decision such as how much you’ll be using the car for business purposes (if at all) as well as your current tax situation.
It can be a little daunting to make this decision on your own. Seeking expert advice can help you to save time and money, as well as giving you the peace of mind when choosing the right option for you.
Speak to us today to find out how we can help you to use your car allowance to get a car loan.