Commercial Hire Purchase
A Commercial Hire Purchase (CHP) is a loan structure wholly or predominantly for business use. The financier owns the asset from the beginning and you are to repay the financier in instalments. You do not fully own the asset until all outstanding monies are repaid in full as per the contract and as the title states, you are hiring the asset with the intent to purchase.
Due to the intent to purchase, you are able to claim as a tax deduction, the depreciation on the asset and the interest component of your repayments. You will also have the ability to claim any GST on the purchase of the asset and the GST on any fees and terms charges (interest).
You can finance the total purchase price or use a deposit or trade-in to reduce the loan amount and repayments. You can even use the GST refund to make a lump sum repayment at a set point of the contract. This has the effect of reducing the loan amount and interest payable over the term of the loan.
Unlike a Chattel Mortgage, the terms charges and any loan fees are a 'taxable supply' making them subject to GST and this is due and payable at the beginning of the contract. You can have the option to finance this additional GST or pay it upfront and this can make it a more costly structure than a Chattel Mortgage if you don't have the ability to claim back all the GST.
The benefits of a Commercial Hire Purchase include; fixed repayments over the term of loan, ownership of the vehicle when all debt as per contract is finalised, flexible loan terms from 12 months to 60 months and some lenders may extend this, option for a balloon payment at the end, the ability to finance loan and vehicle protection, deposit or trade allowable to reduce the borrowed amount.
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