Car Loans
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Car Loans
New car loan: Did you know you'll get a better loan deal with a new vehicle? This is because new car loans are usually secured which means you use your new car as security for the loan. The reason providers offer lower rates and fees for new cars is because they are considered a lower risk, as you are the first owner and the car is unlikely to have the underlying problems of a used car with multiple owners. This makes it easier for the provider to get their money back if you default on the loan and they have to sell your car to recover their loss.
Used car loan: The great thing about purchasing a pre-loved vehicle is that you'll get a much better deal at the car yard or with a private seller because cars depreciate so quickly in value over the first few years. While you'll save on the total cost of the car, you'll generally have to pay a higher interest rate and fees when it comes to taking out a car loan because lenders consider used cars a higher risk. And while you may be able to secure your car loan with a used car, usually providers have a cap on the age of the car of up to 5 years.
Salary sacrifice car loan: If you want to bring down your taxable income, you could consider salary sacrificing, which you set up with your employer and means instead of paying your monthly car loan repayments out of your bank account, the money will be deducted from your salary, thus reducing your taxable income.
Chattel Mortgage
A chattel mortgage is a business use loan product, available over a range of terms, and with a range of different 'balloon' payment options at the end of the term. The business owns the vehicle (the 'chattel') from day one, and the financier uses it as security (the 'mortgage') over the loan. The interest is generally deductible, depending on the proportion of business use, and if the business is registered for GST, the full GST component of the purchase is claimable as an input tax credit in the first BAS following the acquisition.
Commercial Hire Purchase
Commercial hire purchase agreements have fallen dramatically in popularity because of changes made to the GST treatment relating to them. They are therefore less attractive to companies and employees with a car allowance. Most people and businesses in this position prefer the greater financial benefits of a chattel mortgage (see above).
Novated Lease
A novated lease is one of the most cost-effective and tax-effective ways for ordinary Australian employees to achieve car ownership. Basically, a novated lease is a three-way agreement between you, your employer and a finance company. The employee allows the employer to make deductions from their pre-tax salary to make the payments. The employer makes the deductions, and the finance company sets up the novated lease and manages it. Because the payments are made from the employee's pre-tax salary, some of the money that would normally be paid in tax is used to pay for the vehicle. So a novated lease increases the employee's buying power. It's also a great way to purchase a new car GST-free, even if you're not registered for GST.
DON'T BE FOOLED BY ZERO PERCENT
Many deals sound too good to be true - generally because they are. Most zero percent car finance offers certainly fall into that category. They are definitely a good marketing strategy - because they increase inquiry rates at dealerships - but they are seldom a good deal for customers.
Zero percent finance is actually a form of 'sub-vented finance' - where the interest is actually paid indirectly to the financier. In practise, how this works is the dealer pays the interest to the financier from the profit out of the sale of the new car. This is why, when a purchase is completed using a zero percent offer, there is little room, if any, to negotiate on the price of the vehicle.
When choosing finance it is essential to look at the overall deal rather than do what the marketers want - which is to see you focus exclusively on the zero.
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Don't forget to check the fees:
Application fees: Generally speaking, most car loan providers will charge you an upfront fee between $100-$300 to pay for the cost of paperwork and running a credit check to see if you’re a creditworthy borrower.
Ongoing fees: There are many car loan providers that don’t charge a monthly fee, so when you begin comparing car loans, make sure the car loan you sign up with is free of this pesky fee. Because over 5 years, a small monthly fee of $15 will add up to $900.
Breakcost fees: As mentioned above, some fixed interest rate loans may charge a breakcost fee if you decide to pay off the car loan before the agreed term has come to an end.
Termination fees: When your car loan term comes to an end and you pay off the balance, you may be charged a termination fee to cover administration costs and the release of the security they hold over your loan (if you have a secured loan).
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