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How do ABN car loans work?
An ABN car loan is secured vehicle finance designed for ABN holders. The finance is generally flexible to cater to different business types, with a low-doc application option for businesses with irregular income and cash flow.
Money.com.au data from 2022 and 2023 shows buying a vehicle is the most common reason businesses look for business finance – 38% of all loan requests.
The finance behind an ABN car loan is similar to a standard car loan or chattel mortgage. The difference is lenders and brokers who specialise in ABN car finance can help ABN holders with non-standard applications when some traditional banks won’t.
Here’s what’s you can get with an ABN car loan:
- Borrow up to $500,000
- Loan terms from 1-7 years
- Finance a new or used vehicle
- Option to include a balloon payment
- Available for dealer or private sale purchases
- Flexible repayment options to match business cash flow
- No deposit required but can be an option to reduce your finance costs
- Early loan repayment possible (fees may apply depending on the lender)
Did you know? Your ABN car loan costs (interest and fees), as well as vehicle depreciation, may be tax deductible. (Source: ATO)
Am I eligible for ABN car finance?
Eligibility for an ABN car loan will come down to the individual lender. But for most lenders we work with, these are the main requirements:
- You must be an Australian citizen or permanent resident
- You must be an ABN holder
- Your business must be GST-registered
- Generally you must be trading for at least 6-12 months
- You must be able to demonstrate business revenue is sufficient to service the loan repayments
- You'll need to be using the vehicle for at least 50% business use
How to apply for an ABN car loan
1
Compare loan options
Do this before you apply with any one lender. Getting quotes from multiple lenders through a finance broker will allow you to compare your options without impacting your credit report. Consider the loan interest rate, fees, features and the lenders’ eligibility criteria.
2
Gather your application information
Your application will likely be much smoother if you have the required documents ready. The main ones are personal ID (driver licence) and proof of business revenue (usually a business activity statement or contracts for confirmed upcoming work).
3
Submit your loan application
You can usually do this online through your chosen lender’s application portal. If you apply through a broker, they will submit the application on your behalf to save you time.
4
Get conditional approval (optional)
Some lenders offer conditional approval to borrowers up to a limit. This then gives ABN borrowers a confirmed budget for their vehicle purchase.
5
Provide vehicle details
Once you’ve found a vehicle to buy and agreed the sale, you’ll need to give the lender information about the vehicle (via its registration) plus a tax invoice confirming the purchase price.
6
Your loan is funded
If the vehicle meets the lender's criteria, your loan will be funded (settled). This usually involves the lender making a direct transfer of funds to the seller.
Expert tip: Avoid rate shock
Mel Carter, Asset Finance Specialist
“Some borrowers don’t realise that your car finance interest rate usually ends up being different to the one the lender advertises. You could be in for a shock when the quote comes back and it’s much higher than the initial rate you saw. By that stage you've made an application which goes on your credit record. Comparing multiple quotes first means you know exactly what the loan will cost before you apply.”
Mel Carter, Asset Finance Specialist
What are the interest rates on ABN car loans?
Interest rates on ABN car loans typically start from around 7.5% p.a. The lowest rates tend to be available to well-established ABN holders with demonstrated business revenue over a sustained period.
When we’re negotiating the interest rate with lenders on behalf of ABN borrowers, these are the factors that usually have the biggest impact on the interest rate offered:
How long your business has been operating
The longer the better in lenders’ eyes. If your business is relatively new but you have extensive experience in your industry, this can work in your favour. The average ABN car loan borrower has been trading for around 27 months, according to Money.com.au data.
The type and age of vehicle
Lenders prefer newer vehicles for a secured ABN car loan. A vehicle with a higher potential resale value is less risky for them. For this reason, specialised vehicles with limited resale demand often have higher rates.
Your revenue
If your business has a track record of generating strong and stable revenue, you will likely qualify for a lower interest rate.
Your assets and liabilities
Lenders will factor in what assets you own (e.g. business equipment or personal vehicles, plus your overall debt level.
Whether you’re a homeowner
Lenders see owning your own home (being an ‘asset-backed borrower’) as a sign of stability and reflect this with lower rates.
Is it a dealer or private sale
This isn’t always a major factor but some lenders do prefer dealer sales as the purchase is usually backed by a statutory warranty.
How much can I borrow with an ABN car loan?
The maximum amount you can borrow with an ABN car loan will be determined by similar factors to those that impact your interest rate.
In other words, borrowers seen to be less risky will be able to borrow higher amounts.
But when assessing the loan amount, lenders place more emphasis on your business’s income, as this signals how much you can afford to repay. This is sometimes referred to as serviceability.
Money.com.au borrower data shows the average business car loan request is for around $77,000. The average monthly revenue among ABN borrowers is just over $20,500.
Can I repay my ABN car loan early?
This is a question we’re commonly asked by ABN borrowers and the answer is yes, you usually can on most kinds of business loans.
But you need to watch out for early payout fees. In some cases, the money you save on interest and regular loan fees by repaying the loan early could be cancelled out by a large penalty fee.
“If having the flexibility to repay the loan early is important to you, make sure you factor that in from the start when choosing a loan,” says asset finance expert, Mel Carter.
“Otherwise you might find out down the line that there’s a big early payout fee that means paying off the loan early really isn’t worth it. This is not a nice surprise to get three or four years into your loan.”
But if you are able to secure an ABN car loan with no penalty for early repayment, the savings for your business by shaving time off the term can be significant.
Impact of paying your ABN car loan off early
Loan amount | |
Full loan term | $75,000 |
Paid off sooner | $75,000 |
Loan term | |
Full loan term | 5 years |
Paid off sooner | 4 years |
Monthly repayment | |
Full loan term | $1,644 |
Paid off sooner | $1,952 |
Total to repay | |
Full loan term | $98,612 |
Paid off sooner | $93,705 |
Saving | |
Full loan term | $0 |
Paid off sooner | $4,907 |
| Full loan term | Paid off sooner | |
|---|---|---|
Loan amount | $75,000 | $75,000 |
Loan term | 5 years | 4 years |
Monthly repayment | $1,644 | $1,952 |
Total to repay | $98,612 | $93,705 |
Saving | $0 | $4,907 |
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