There are a number of factors to consider when the finance offer received from a bank or lender differs from the result obtained by using a finance calculator. Calculators are a great resource for businesses to utilise ahead of making major equipment and vehicle acquisitions and taking our business loans and overdrafts. They allow for quick and easy calculation of repayment estimates and enable businesses to plan how they may like their finance structured.
Using a finance calculator
is extremely for preparing budgets, scheduling asset acquisitions, comparing possible repayments on different priced equipment models and generally assisting with the purchase and investment process. But key to effective use of a calculator is the proper use of the resource and having a full understanding of what these finance tools can and cannot do.
A key issue to realise is that there can be a difference between the finance offer received – in terms of interest rate, repayments and even loan terms, compared with the calculations made with a finance calculator.
We cover off on how this can happen and what businesses may do to achieve the greatest benefit from a finance calculator.
Different Finance Amount
When using the calculator, the estimated price for the equipment or vehicles may have been used. Additional costs may have been incurred such as on-roads, delivery and other extras which have added to the loan amount required.
All fees and charges applied by lenders are not allowed for in using calculators as these vary. This can increase the total loan amount required. To cover off on extra costs, when using a calculator, add a contingency amount.
Different Finance Product
Businesses have a choice of several loan types – Leasing, Chattel Mortgage
, Commercial Hire Purchase and Rent to Own. The interest rates vary across the selection. If the choice of finance product changed between using the calculator and applying for finance, a different repayment result may occur.
Different Finance Term and Balloon
Lenders will have a say on what terms they will approve. This will depend on different aspects of the business and the application. The term preferred and entered into the calculator may not have been approved by the lender.
The same can apply to the balloon or residual amount. The amount that the business may want, may not be approved by the lender or in line with some ATO rulings. If the balloon approved is a lower percentage than that used in calculations, it would result in higher monthly repayments but less payable at the end of the finance term.
Different Interest Rate
This is where many variations can occur in the finance offer repayments compared with the results obtained via a calculator. Different interest rates apply to different equipment types and in different industries and as mentioned above with different finance products.
The interest rates advertised by ourselves and other banks and lenders will typically be the best rate achievable for businesses with a good credit rating. Lenders will assess the creditworthiness of applicants and that will impact the rate offered. Maintaining a good credit score will ensure the best rates are offered.
Differences can exist between interest rates on different categories – equipment, motor vehicles, business loans, etc. Ensure you use the correct rate when using a finance calculator.
Interest rates are currently in an upward cycle. Rates may have changed since the calculator result was obtained. The RBA
is set to increase rates further in coming months. This should be allowed for in using the finance calculator for purchases to be made at a later date.
New v Used Assets
Variations can also occur in regard to brand new and second hand equipment and vehicles. The interest rate, finance term and balloon/residual can be different for used goods compared with new. This could result in a different offer to the calculator result.
The finance offers made to new and small businesses may differ from established businesses. While we offer Low Docs and No Docs Finance for new businesses, not all lenders offer this type of finance. Low Docs can attract different interest rates and loan conditions around loan terms.
Obtain Firm Quotes with Pre-approved Finance
While using a finance calculator is great, users should follow the instructions and our disclaimer to ensure they appreciate the relevance of the results calculated. For even greater assurance, consider speaking with us about pre-approved finance.
We offer pre-approved finance across our portfolio. The application is processed through to approval stage so a firm loan offer can be obtained. This will have a timeframe but does provide clarity and confidence when proceeding with asset acquisitions.
Contact Business Finance on 1300 000 033 to discuss pre-approved business finance
DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.