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Blog   »   June 2015   »   Misunderstood Terms

Misunderstood Terms

Misunderstood Terms

Many people use incorrect terminology when requesting information from their bank or financial institution, hence another good reason to use Hunter Business Finance.

What's the balance on my account?

With a consumer loan the balance, in a majority of cases, is similar to the payout figure plus the daily interest component, however, with a commercial loan contract on cars, trucks, excavators etc it is different.

For example:

A contract taken out over 60 months to purchase a $52,000.00 bobcat may have repayments of $1,000.00 per month. You wish to finalise the account after 7 months, the payout would be approximately $49,000.00 whereas the balance on the account would be $53,000.00. This is because a majority of commercial contracts are fixed rate fixed term contracts.

Also be aware some lenders do not give rebates on interest charges on some commercial contracts. This is another reason to use Hunter Business Finance as we are aware of who gives rebates on charges, who doesn't and who gives the best rebates. Some lenders may give cheaper rates on commercial contracts (0.5% to 1.0%) better rate when you take the contract out, but don't give rebates. When you consider the average term of a 60 month contract only runs for 36 months, that 0.5% to 1.0% better rate is insignificant if they don't give or only give a diminished rebate.

I Want A Lease

Most people use the term "I want a lease" when they wish to finance cars and equipment.

They may mean lease, but 95% of people mean chattel mortgage or commercial hire purchase.

In about 2000, the ATO changed the repayment deductibility on leasing and replaced it with a similar claiming regime as claimed under chattel mortgages and commercial hire purchases (depreciation and interest) as such leasing became less popular, became unfortunately more expensive and your cash flow is worse.  

There are some very rare cases that can claim finance lease repayments, but these are as said very rare.  They are governed by a "simplified tax system" but remember 99% of businesses can't use this "simplified tax system".

Operating leases and / or rentals do still exist and are handled differently from finance lease, novated lease, commercial hire purchase and chattel mortgages. Explanation of these are for another time.

If I Pay it out do I Save Interest?

Simple question, very complicated answer!

There are a number of methods to work out interest rebates and charges. Consumer loans are covered by legislation and are in most cases worked on a daily rest - ie: the interest is calculated daily hence your payout will change daily.

Commercial transactions are different as they are not covered by the government consumer laws.

Usually commercial equipment loans are cheaper than those of consumer but do not have as generous rebate system.

Some work similar to consumer, some have a deemed rate.

For example:

If you take out an equipment loan at say 6% the lender may charge 10% if you are in arrears on the outstanding balance, but if you finalise / payout your loan they will use a diminished rate (deemed rate) of 2%.

Others will charge a 3 months interest penalty rate for finalising early others will use a rebate system where if rates go down you have to "reimburse" the lender for lost income but if rates go up you may not be charged a penalty at all.

Posted: 12/06/2015 4:44:13 PM by Hunter Business Finance | with 0 comments


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