The COVID-19 pandemic, unfortunately, rolls on both globally and domestically, creating an ongoing disruption to business operations in many sectors. Inflation is soaring which has resulted in interest rate hikes by the RBA, supply chains are disrupted by global issues and many operators are struggling to meet customer demand. So when new vehicles are required with motor vehicle finance, big questions need to be answered.
Businesses seeking to invest in new vehicles may wish to consider the forecast for their particular industry sector and for the economy in general terms to get an indication of business prospects over coming periods. In regard to finance, an indication of what is likely to happen with interest rates is a must for those seeking a cost-effective, cheaper interest rate solution.
To time vehicle purchases with motor vehicle finance to achieve the cheapest rate and most workable loan businesses can utilise forecasts and economic outlooks. A range of resources are available through the RBA and the Australian Bureau of Statistics while our Jade Car Loans consultants are on hand to assist businesses with the most cost-effective vehicle finance solutions.
Interest Rate Outlook
The interest rate is key to many financial decisions and with rates in general terms on the rise, this may be a key deciding factor for many businesses when it comes to purchasing new vehicles at this time. The RBA lifted rates again at its August meeting and in the accompanying statement, gave a very strong indication that further rate rises will be required in the coming months.
When the RBA lifts the cash rate, lenders respond with their individual rate decisions across most lending markets. Due to the individual factors which guide lenders when setting their own rates, there can be significant variations in lender rates across the market. Having quick and easy access to many lenders through Jade Car Loans can be of great assistance to businesses in securing the cheapest rate.
Different business loan rates of interest also apply to different business finance products – Chattel Mortgage, Leasing, Novated Lease and Commercial Hire Purchase. The decisions around which loan type will be best suited to a business does depend on a number of factors, primarily relating to accounting issues. But with say Sole trader car financing (Chattel Mortgage) attracting a lower interest rate than Leasing, and with the potential for additional tax benefits, it may be worth investigating choice of motor vehicle finance with the business accountant in greater depth.
Rates advertised will be for new vehicles, unless otherwise stated by the lender. Rates for used car finance may be higher. This may be taken into account when considering a used v new purchase with the current situation with supply of some new vehicles.
Economic Outlook
The ABS regularly releases a wide range of reports covering employment, consumer spending and other topics. The reports on consumer spending patterns may provide information for operators in different sectors. Cost of living and interest rates are seen as putting pressure on household budgets which will no doubt impact consumer behaviour. Businesses in specific sectors may be able to use this data and forecasts to shape their operations and vehicle purchasing decisions.
Recent employment figures released by the ABS reveal a 50 year low in unemployment, indicating a very tight labour market. For businesses looking to expand with new staff, this may pose a problem. Many businesses have been experiencing difficulties in recruiting due to COVID issues.
The RBA recently released its 4 monthly economic outlook which is a very detailed document covering both global and domestic factors. In regard to employment, the RBA forecasts a further drop in unemployment in 2022 before an increase in 2023. So that tightness of the labour market which is constraining capacity may continue.
Inflation is a key driver at the moment and has hit a high of 6.1%. The RBA outlook includes a forecast for this to rise further to 7.75% this year before a fall in 2023 to around 4%. This may have considerations for businesses in regard to costs and will definitely shape RBA rate rise decisions over the coming months.
Tax Benefits on Finance
Timing finance to optimise tax benefits can be a very beneficial strategy. Tax deductions can effectively reduce the cost impost of the motor vehicle finance. Tax benefits vary across the range of business finance products and should be discussed with the business accountant.
A very popular measure currently available is temporary full expensing. This is available for eligible asset purchases by eligible businesses through this financial year. Motor vehicles would generally be included as an eligible asset. But businesses should check the ATO criteria or speak with their accountant to ensure the business and the vehicle meet the guidelines.
Chattel Mortgage is seen as the most appropriate form of finance for realising the benefits of temporary full expensing. It also attracts the lowest interest rate compared with Leasing. These factors and the suitability for many businesses, does make this form of vehicle finance the most popular.
With the accelerated asset depreciation measures not scheduled to continue beyond end of June 2023, making those vehicle purchases this financial year could result in significant offsets.
Vehicle Supply
Actually securing the vehicle of choice has been an issue for buyers over the past pandemic years. According to the latest statement by the FCAI, the situation is not expected to stabilise in the near future. Manufacturers are still facing challenges due to COVID and other issues, making it vital for prospective buyers to consider options like a new business car financing.
So the timing of any purchases may be dependent on the availability of the vehicle. But, price rises are being seen across many models. So delaying the purchase could result in a higher price and as such higher finance repayments. Opting for a different make or model which is currently available may result in savings on several fronts.
Buyers can use our finance calculator to assist with preparing business budgets to factor in the investment in new vehicles. Alternatively, contact us and discuss the options with securing finance now or waiting for a later time.
Contact Jade Car Loans at 1300 000 003 to discuss how we can assist you with cheaper motor vehicle finance.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.
