What you need to know about asset finance
Buying a home is undoubtedly the largest purchase most people will make in their lifetime. But homes aren’t the only things that require financing. There are other assets such as cars or equipment where someone will need to seek funding to secure their needs.
Here’s what you need to know about asset finance and how you can get the best out of your borrowing arrangements.
Asset finance: the basics
Similar to, yet distinct from, home and personal loans, asset finance (or asset loans) can be used to purchase a range of products. These loans are commonly drawn up for businesses, but individual buyers can enjoy them too.
Asset finance is increasingly the norm for businesses needing to purchase vehicles such as cars, utes and fleets, as well as machinery and tools. Other commonly financed assets include fit-outs, medical or specialised equipment, and technology, which can directly support revenue generation.
Many businesses deliberately choose to finance these assets rather than pay cash, thereby preserving working capital to invest in staff, marketing, inventory, or other growth opportunities. There may also be tax advantages.
For households, asset loans can mean a badly needed new car. This asset may be even more important when they move to a new area with little or no public transport, making commuting to an office or work site almost impossible.
These are just some of the reasons vehicle lending, for example, has become a common next step to take after people secure a home loan. One in four home buyers now use asset finance to purchase a new car – and they’re doing this within the first month of settling on a new property.
But there’s a good reason for this tiny time span.
Personal asset finance: why timing matters
Buying a car, or other large asset, after a home can materially impact your property borrowing capacity, as car or asset loan repayments are included in lenders’ serviceability calculations. This means they can reduce the amount you can borrow for a home or future investment.
Unfortunately, many home buyers need financing for a car or other expenses because most of their savings or equity has been used for the home loan deposit, stamp duty, and moving costs. While it can be tempting to sign off on an asset finance loan before your property settlement, I always encourage clients to wait until after that date.
If they do, they can begin an asset loan without concerns about their borrowing capacity. This is definitely why we’re seeing so many home buyers turn to asset finances for a new car so quickly after their settlement day.
Perhaps more importantly, you can make asset finance a cash-flow tool, allowing this loan to spread the cost of a car or other large purchase rather than further draining savings right after buying a home.
Asset finance: what you need to know
If you’re new to the asset finance scene, it’s important to know how they differ from a home or personal loan.
First, lenders assess asset borrowing differently from a home mortgage. Asset financing will generally come with shorter terms and distinctive interest rate structures. Plus, they will only have security over a depreciating asset, such as a car, rather than a long-term property lending policy.
Then, there are the different structures in and around asset finances. These can include chattel mortgages, leases, and equipment loans, all of which offer flexibility in ownership, repayment terms, and tax treatment.
In this way, aligning the loan term to only the asset’s useful life is highly important, as structure often matters more than simply chasing the lowest rate. In fact, poorly structured financing, such as focusing only on the lowest repayment or using long-term financing for short-life assets, can harm your cash flow and increase your total costs.
Careful consideration
Asset finance should always be considered as part of a broader financial strategy, not in isolation. You should also ensure you have a specialist to call on when you’re considering this type of loan.
Around 72% of commercial asset finance is already written through brokers, reflecting the value of advice, lender choice, and tailored structuring. Broker guidance can also help balance clients’ property goals, cashflow, and growth plans before committing to new debt.In this way, the Intuitive Finance team is ready to provide you with firsthand guidance on your exciting asset journey. Whether you’re a business or an individual, contact us today for a complimentary strategy session.
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