Commercial Hire Purchase

Man wanting to know what is a Commercial Hire Purchase

A commercial hire purchase arrangement allows you to start making monthly instalments towards the purchase of a vehicle, while being able to use the vehicle immediately for business purposes. This arrangement allows for a more manageable expenditure and also offers the possibility of tax deductions for your business.

Through a commercial hire purchase (also known as corporate hire purchase, hire purchase, or offer to hire) agreement, you can hire a vehicle from a financier in return for a fixed monthly repayment over an agreed period of time. The financier purchases the car on your behalf and hires it to you for a set timeframe during which you can use the vehicle, but you are not the owner. Ownership remains with the financier until the term of payments is completed and the total price of the vehicle and the interest charges have been paid. At this point, ownership of the vehicle automatically transfers to you.

This type of arrangement makes sense for those who use their vehicle mostly for business purposes. It can be a good option for business owners who do not want to commit significant funds to buying a vehicle upfront, instead making manageable monthly payments that can often be adjusted to business circumstances.


Commercial hire purchase is aimed at customers who will mainly use their vehicle for business purposes. These may include sole traders, partnerships, and companies. A financier buys the vehicle for you and hires it back to you in return for a set number of installment payments, after which you become the owner of the vehicle.

Here are some key points to note about commercial hire purchase:

  • During the loan term, you are not the owner of the vehicle but you can use it as you wish, as long as regular payments are made as agreed.
  • The contract terms are flexible and can range from one to five years.
  • A fixed interest rate is usually applicable.
  • A deposit or down payment on the vehicle is sometimes required. Depending on the lender, trade-ins may be used to offset the amount due.
  • Tax deductions may be possible if the vehicle is used for business purposes.
  • Residual value may be included in contract, meaning that a larger payment will be due at the end of the loan term. This means that the repayment instalments due will be lower in value, which may suit some businesses.
  • GST is not charged on the residual or on the monthly payment amount, but it is charged on interest and fees. If you are registered for GST you may be able to claim the GST on the price of the vehicle, the interest charges, the depreciation value, and any term charges or fees.


New Car on a Commercial Hire Purchase

As commercial hire purchase terms and conditions can vary from lender to lender, it’s important to know what your options are before you apply.

Find out the degree of repayment flexibility and whether it will be possible to adjust payments according to your cash flow. Lenders may offer the possibility of weekly, monthly, quarterly, yearly or structured payments (meaning that payment dates are fixed for specified times of the year).

Compare the interest rates offered by different lenders, as this will have an impact on the final cost of the vehicle to you. Find out if a deposit is required and if so whether a trade-in vehicle can be used instead. Ask about different loan features and assess which are most suitable for your business requirements and capacities.

Get full details of the fees that you may be liable for with different lenders.


Interest rates are generally low, as the vehicle is used as security on the loan.

There can be additional fees such as establishment fees, which may range from $0 to $350.


Vehicles acquired through commercial hire purchase must be used mainly for business purposes.

Hire purchase agreements are granted mainly to:

  • Companies
  • Sole traders
  • Trusts
  • ABN holders
  • Employees who receive a vehicle allowance/individuals who need the vehicle mainly for work purposes

The vehicle itself is usually the only security needed.

In order to claim certain tax deductions you must have registered for GST. You can then claim it on your next Business Activity Statement (BAS).


Applying for a Commercial Hire Purchase

You are eligible to apply for a commercial hire purchase if the vehicle will be mostly used for business or income generating purposes, whether you are an individual, a sole trader, a company, trust, ABN holder, or an employee who receives a vehicle allowance.

Once you have compared and contrasted the details of the offerings from different lenders, and selected the arrangement most suited to you, loan applications may be made either online or in person. You will be required to complete an application form and provide personal and financial details.

There will be a discussion about the specific vehicle you wish to finance, in particular its age and cost and the deposit/residual options that would be workable for you and your business if you decide to go for this option.


Positive advantages of a commercial hire purchase include:

  • You have automatic ownership of the vehicle once all instalments are paid, and you may also have the option to purchase the vehicle outright during the loan term – however, additional fees may apply in this case.
  • Repayment schedules are flexible, possibly with the option of balloon payments in order to manage repayments in line with your cash flow, as and when it allows you to afford larger or smaller instalments.
  • Costs are known in advance and the fixed payment amounts assist in accurately projecting your expenses over the period of the commercial hire purchase.
  • You may be able to benefit from applicable tax deductions.
  • For businesses that use cash accounting, it is possible to claim the GST for the purchase upfront.


  • For the duration of the agreement, you don’t own the car but you are responsible for all the costs of operating the vehicle, including registration, insurance and maintenance. If you default on repayments you may lose the car and all instalments and other monies already paid.
  • A commercial hire purchase agreement may not be the cheapest option for you – compare the overall cost to that of a standard personal loan.


  • If you think there is a chance of defaulting on payments, the risk to you and your business is high.
  • Carefully assess what type of vehicle is most practical and cost-effective for your needs – choose a vehicle that is well within your budget in order to ensure that the loan repayment schedule will be manageable for you for the duration of the loan term.


What are the benefits of a commercial hire purchase?

  • A commercial hire purchase offers low fixed interest rates, because the vehicle itself is used as collateral against the loan.
  • Tax deductions may be claimed as the vehicle is used for business purposes.
  • This arrangement offers flexible terms for loan repayments that can range from two to five years.
  • There can be the possibility of claiming GST if your business meets requirements.
  • A deposit may not be necessary, making the barrier to entry into this type of agreement quite low. However, you may have the option to pay a deposit in order to reduce the amount borrowed.
  • You may have the option to agree on a residual value/final balance payment in order to reduce the amount of monthly repayments. The residual balance can be up to 60% of the value of the vehicle.
  • Depending on the lender, there may be the possibility of adjusting monthly payments to suit changes in cash flow in your business cycle.

Is a commercial hire purchase the right option for my business?

You can apply for a commercial hire purchase as a business or as an individual, as long as the vehicle will be used mainly for business purposes.

If you are registered for GST, this is a good option as you can claim the GST as an input tax credit. In addition you can claim GST on interest charged over the duration of the hire purchase agreement and on depreciation. Businesses using the cash method of accounting can claim GST in equal instalments over the duration of the agreement. Businesses using the accrual method can claim the GST on the purchase price of the vehicle. Monthly and residual payments are not charged GST.

What alternatives to a commercial hire purchase are there?

Employees can choose from alternative options such as a car loan, a chattel mortgage, and a novated lease – these can all be cost-effective solutions for your vehicle requirements. Other than this, businesses may have the alternative options of car leases or chattel mortgages.


Man happy with professional advice on his Commercial Hire Purchase

The right vehicle can literally keep your business running smoothly, and a commercial hire purchase may prove to be the most manageable way of financing this. Talk to the experts at Mortgage World Australia to discuss the options that best suit your business needs and will allow you to start working towards ownership of the right vehicle, at the right price.

Are you ready to get your motor running? Call Mortgage World Australia today.