Common Mistakes When Financing a Work Vehicle

Claiming the Wrong Entity as the Borrower

The loan should sit with the entity that will claim the tax deduction. If your business operates through a company or trust, the vehicle should be financed in that entity's name, not your personal name. A sole trader claiming business use can hold the loan personally, but if you're operating through a structure, the ATO expects alignment between who owns the asset and who claims the expense.

Consider a tradie running a small building company in Morwell. The business is structured as a company, and the ute is used exclusively for work. Taking out the loan in his personal name might feel simpler at application, but it creates complications at tax time. The company can't claim interest or depreciation on an asset it doesn't own, and moving the vehicle into the company later involves stamp duty and transfer costs that could have been avoided.

Choosing a Loan Term That Doesn't Match the Asset's Working Life

A five-year loan term on a vehicle you'll replace in three years leaves you paying off something you no longer own. This becomes a problem when tradespeople or business owners want to upgrade their fleet but still owe more than the old vehicle is worth.

In our experience working with clients across Gippsland, the most common misstep is financing a high-kilometre work vehicle over seven years when the engine and drivetrain are unlikely to last beyond five. The loan continues well after the vehicle becomes unreliable or uneconomical to run. A better approach matches the loan term to the vehicle's expected working life, which might mean higher monthly payments but avoids the situation where you're making repayments on a vehicle sitting in a mechanic's yard.

If you're weighing up different loan structures or terms, a loan health check can help identify whether your current arrangement still suits your business.

Overlooking the Tax Treatment of a Balloon Payment

A balloon payment reduces your monthly outgoings, but it doesn't reduce the total interest you pay. The amount deferred to the end of the term still attracts interest over the life of the loan. Some business owners assume the balloon will be covered by selling the vehicle, but depreciation and wear often mean the sale price falls short, especially if the vehicle has been used hard.

As an example, a landscaping business in Warragul finances a $60,000 ute with a 30% balloon payment. The lower monthly repayment helps with cash flow in the first few years, but when the balloon falls due, the vehicle is worth $15,000 and the balloon is $18,000. The shortfall has to be paid from working capital or refinanced, which wasn't part of the original plan.

If your business regularly turns over vehicles, understanding how asset and equipment finance works alongside vehicle loans can help you plan for replacements without funding gaps.

Mixing Personal and Business Use Without Documentation

The ATO allows you to claim the business portion of vehicle expenses, but only if you can prove it. A logbook showing work-related travel over a continuous 12-week period is the most reliable method, yet many business owners rely on estimates or the kilometre method without checking whether it actually gives them the better outcome.

We regularly see this with clients who use a ute or van for both work and personal trips. If 80% of your travel is genuinely business-related, the logbook method will give you a bigger deduction than the cents-per-kilometre method, which caps out at 5,000 kilometres. The loan interest, running costs, and depreciation are all claimable in proportion to business use, but without proper records, you're either overclaiming and risking an audit, or underclaiming and paying more tax than you need to.

Applying for Finance Before You Know What You Can Borrow

Showing up at a dealership without knowing your borrowing limit usually means accepting the dealer's finance offer, which may not be the most suitable option for your business. Dealer financing can be convenient, but it's often structured to suit the sale rather than your cash flow or tax position.

Getting pre-approved through a broker gives you a clear budget and puts you in a stronger position to negotiate the purchase price. It also means the loan structure, term, and any balloon payment are set up around your business needs rather than what the dealer has on offer that week. If you're based in Traralgon or surrounding areas and want to discuss your options before you start looking at vehicles, you can book an appointment at a time that works for you.

Refinancing Too Late or Not at All

Interest rates on vehicle finance can vary significantly between lenders, and the rate you were offered two or three years ago may no longer reflect what's available now. If your business circumstances have improved, or if you've paid down other debts, you may qualify for a lower rate. Refinancing a car loan isn't as common as refinancing a home loan, but it can reduce your monthly repayment or free up cash flow for other parts of the business.

A client running a delivery business in Sale had been paying a higher rate on a van loan because it was arranged quickly through the dealer when they first started out. After two years of consistent repayments and stronger financials, they were able to refinance the car loan at a lower rate, which saved several thousand dollars over the remaining term. The process took less time than expected, and the monthly saving went straight into vehicle maintenance and fuel costs.

Call one of our team or book an appointment at a time that works for you to discuss how your business vehicle should be financed and whether your current arrangement still fits your situation.

Frequently Asked Questions