There are several different types of business vehicle financing that can help you buy a business car. Find out more about how you can apply for a car loan for business, and compare lenders and loan types to find the best business vehicle financing option for your unique set of needs.
Yes, there are unique business car loan options available in Canada. Business vehicle financing refers to borrowing options that can help you pay for the costs of a new car, truck, van or other vehicle for business use. Your business car loan options are similar to those of regular auto loans, but you might not have the same selection of lenders and may have to meet different eligibility requirements.
The type of auto financing that will work best for your business depends on a range of factors, including your company’s financial situation, taxation needs and whether you’ll use your new vehicle only for business or for personal use as well.
Your company has a number of business vehicle financing options to choose from:
You can take advantage of a business car loan if you drive for a taxi company or you need to buy a car to offer ride-sharing services for companies such as Uber or Lyft. You’ll just need to make sure that the vehicle you buy meets the eligibility requirements for the ride-sharing service you want to work for.
The difference between business car loans and traditional car loans is outlined below:
Traditional car loans for personal use are usually secured by the vehicle you want to buy. This means that your lender can repossess your vehicle if you fail to make your repayments. Your lender will also rely on your personal credit history and income to determine if you qualify.
These loans are very similar to personal car loans but they require you to own a business. You’ll also typically need to meet eligibility criteria that relate directly to your business (such as having a certain business credit score or annual revenue).
Anna wants to get a business car loan to buy a vehicle for her well-established sales company. She finds a 2021 Honda Civic for $23,400 + 13% HST, for an overall cost of $26,442. She decides to take the plunge and applies for a business car loan with an online lender. This is what her loan will look like:
|Loan type||Business car loan|
|Loan term||5 years|
|Interest rate (APR)||8.40% ($6,031.48 over 5 years)|
|Additional fees||4.00% origination fee ($1,057.68)|
|Monthly payment||$541.22 per month|
|Total loan cost||$32,473.48 + upfront fee of $1,057.68|
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
Buying a vehicle means you’ll own it once you’ve paid for it in full. Leasing means you can use the car for a fixed amount of time but you won’t own it at the end of your lease. Here’s how the two options stack up:
|Buying a vehicle||Leasing a vehicle|
|Typical initial cost||Down payment of around 10% to 20% of the cost of the vehicle.||Security deposit of the first month’s payment. (You may be able to make a larger down payment to reduce your monthly payments.)|
|Ownership||Your business owns the car as soon as the paperwork is signed.||Your business can buy the car after your lease is up for a large balloon payment.|
|Tax benefits||Your business can deduct part of what was paid to buy and use the vehicle. Learn more below.||Your business can deduct part of what was paid to lease and use the vehicle. Learn more below.|
|Maintenance||Your business is responsible for maintenance costs.||You might be charged a fee if your car needs excessive maintenance once you’re done with it.|
You can write off your vehicle depreciation and costs to use and maintain your vehicle with the CRA on your taxes.
You can’t claim motor vehicle expenses fully with the CRA. Only a certain portion of your vehicle’s depreciation and expenses are claimable, except for parking fees and supplementary car insurance, which can be 100% claimed as motor vehicle expenses.
As with any financing option, one of the most important things to avoid is getting in over your head. Having debts pile up on top of one another can hurt your business, so make sure you can afford a business vehicle financing arrangement before you sign up.
Another common pitfall is simply not understanding the range of business vehicle financing options available and selecting one that doesn’t suit your business’s needs and budget. Enlisting the services of an accountant can help.
To find out more about financing a business car or other business expenses, check out our detailed guide on business loans. We’ll tell you about different types of loans, how to apply, the costs that may be involved, alternative financing options and more.
You have several options for business vehicle financing to choose from if you want to get a business car loan. Find out more about how each type of financing works, how much you can borrow and what you need to do to qualify.
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