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Car Finance For Sole Traders

Todays Date: December 16, 2018

As a sole trader or sole proprietor, investing in machinery or products that are vital to the functioning of your business can represent expensive overheads. And because the burden of that outlay of cash falls on one person, the idea of commencing operations on your own can be financially daunting. A car or vehicle can be fundamental to the smooth operation of many business activities, but it’s still a significant expense. There are, however, a range of car finance options that are suited to the sole trader to make the purchase of a car for business operations a viable option:

  1. Low doc car loans: If, as a sole proprietor, you’re able to meet loan repayments but unable to prove your income, then low doc car loans are the easiest, most flexible car finance option. Proving income can be hard for sole traders, especially if you’re just starting up, and low doc car loans require little to no financial documentation. This low level documentation makes fast car loans easy, and the process less stressful. The catch? Interest rates are often a little higher.
  2. Chattel Mortgage: For traders who want ownership of a vehicle yet cannot afford to buy outright, chattel mortgages are a popular option. Under a chattel mortgage, a financier purchases the vehicle for the sole trader, who then pays it off monthly. The vehicle must be used predominantly for business purposes, and the loan is secured against the vehicle.
  3. Car Leasing: If immediate ownership is not an issue for the trader, leasing can be an affordable, convenient means of operating a car for business purposes. Leasing a car works much like renting, but for an extended period of time in set monthly payments. Once the leasing period is over, he can choose to buy the car at a residual coast (which, set at the depreciated value of the car, can be a frugal option). Alternatively, the lease agreement can be continued.
  4. Commercial Hire Purchase: With a Commercial Hire Purchase, sole traders hire a vehicle from a financier who has bought it on their behalf. At the end of the contract term, he will own the vehicle.

Car finance for sole proprietors can come with benefits and tax deductions, so it’s important to check what you can claim back come tax time. Also, bear in mind that with certain options, such as leasing, sole traders will reduce the amount of GST they will be paying on the car. And with, chattel mortgages and commercial hire purchase, sole traders are eligible to claim tax deductions for the depreciation of the vehicle.

As a sole trader, it is possible to finance a vehicle without having to set aside significant sums of money. Consider which car finance option is best suited to drive your business to success.

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