When purchasing a new car, the first question people often ask themselves is, what type of loan should I get?
The car loans business in Australia is a competitive market and for the borrower this means there are many options available to get a great deal.
But, with so many different types of loans and so many businesses catering for each consumer, what is the right type of loan?
Let’s take a look at alternatives for people in different situations to find the information needed to make the best choice.
A personal loan is a loan that can be used for many different reasons. It is a financial product that is lent by the financial company to the consumer. They are available over a range of terms and interest rates depending on different factors, including credit history and whether the loan is secured by a physical asset or not.
A car loan is like a personal loan, but may contain lower interest rates because the loan is secured by a financial interest – being the purchase of the vehicle. There are many different websites that offer extensive information on car loans and what everyone needs to know when applying for a car loan. Also, many businesses now operate predominantly online, such as CarLoans.com.au, and review a number of lenders to provide great deals. This saves people the hassle of walking into a bank and feeling like they don’t have many other options.
A novated lease is one of the most cost effective and tax effective ways for ordinary Australian employees to own a vehicle. A novated lease is a three-way agreement between an employee, the employer and a finance company. As part of salary sacrificing the employee allows the employer to make deductions from their pre-tax salary to make the payments on the vehicle and the finance company sets up the novated lease and manages it. As the payments are made from the employee’s pre-tax salary, some of the money that is used to pay tax is used to pay for the vehicle. This is a great way to purchase a new car GST-free. Some costs included may be annual registration, insurance, stamp duty, fuel, tyres, servicing and roadside assistance. This would often be referred to as a Fully Maintained Novated Lease. To see if this is an option for you, refer to your employer for information on this type of agreement.
A chattel mortgage is a loan product used as part of a business and is available over a range of terms, including a range of different ‘balloon’ payment options at the end of the term. The chattel (the business) owns the vehicle from the start and the financier uses it as security (the ‘mortgage’) over the cause of the loan. Depending on the proportion of business use the vehicle has, the interest is generally deductible. If the business is registered for GST, the full GST component of the car can be claimed as an input tax credit in the first BAS following the purchase. This loan type can be used by an individual as long as more than 50 per cent of the vehicle is used for business reasons.
The benefits of a chattel mortgage include:
- Fast approvals
- Low rates and flexible terms
- Independent advice
- Wide wage of lenders and products
- Fixed repayments make budgeting easy
Commercial Hire Purchase
A commercial hire purchase is a loan structure predominantly for business use. In this case the financier owns the vehicle from the beginning and the customer repays the financier in instalments. The car is not the customers until all outstanding monies are rapid in full. Commercial hire purchase agreements have fallen dramatically in popularity due to the changes made to the GST treatment relating to the loan. Therefore, they are less attractive to companies and employees with a car allowance. Most people and businesses in this position choose the chattel mortgage instead – see above.
The benefits of a commercial hire purchase include:
- Fixed repayments
- Ownership of the vehicle once paid off
- Flexible loan terms from 12 months to 60 months
- Option for balloon payment at the end
Some Loan FAQs
- What is Fringe Benefits Tax?
A fringe benefit is a benefit provided to an employee in addition to – or in place of – salary and wages, such as a vehicle. The employer is responsible for meeting the Fridge Benefits Tax, but generally the cost of the Fringe Benefits Tax is charged against the employee’s salary package.
- What is a fixed and variable rate loan?
When looking for a loan, there are two options – fixed or variable rate loans. A fixed rate loan means the interest is locked in for the term of the loan. This means the repayments will be set and each month the same amount is paid. A variable loan means the interest rates can change over the duration of the loan. Sometimes a variable rate loan can offer attractive early payout conditions, but the lenders can change the interest rates at any time.
- How much can I borrow?
The amount that can be borrowed depends on a few factors including current household income, marital status, whether the customer has children or dependants and the loans already taken out under their name. For a quick quote, try www.carloans.com.au.
- What is a comparison rate?
A comparison rate is a requirement under current credit legislation when advertising finance rates or repayments. This isn’t the same as interest rates. A comparison rate is for advertising purposes and excludes the borrowing fees. An interest rate will calculate the repayments from the borrowed amount and includes the fees.
- What is a Residual Value or balloon payment?
The Residual Value is a prediction of the reduced value of the assets at the end of the lease term. The residual values have set guidelines in place for motor vehicles from the Australia Taxation Office and in many cases the Lease Agreement, Residual Values are mandatory.
- I have heard about 0% Car Loans, what is the deal with them?
This loan is referred to as a ‘sub-vented finance’. It is a type of lease in which dealers might reduce the cost of the lease through increasing the Residual Value – the car value at the end of the lease – or by decreasing the value rate. To read more click here.
CarLoans is a business that helps individuals into their new car at a great rate by securing a range of finance alternatives from a range of reputable Australian lenders. They make approvals on loans a fast process and provide a range of finance options to suit.
Some supporting documents are often required, but CarLoans help customers complete the application process. It is a one stop shop for quotes, applications and all need to know information in relation to car loans.
Sellmycar.com.au is a vehicle buying service backed by Cox Enterprises, a global business with over 50 years experience in the automotive industry.