The Best Car Loans
Which Car Loan is best?
The most common question we hear at SB Finance…When shopping for a new or used car, it is important to understand the different Car Loan products available and which options suit you best. Are you needing a car for a growing family? Do you use your car to only go to and from work? Do you use the car for predominantly work use? Is the car a business vehicle? All of these questions factor into what auto loan suits you best! Having cash savings is great but do you prefer to keep them aside for a rainy day or investment purposes and prefer to pay off your purchase in installments? Then there are some great options available to you!
Types of Car Loans in Australia
There are five main types of car loans in Australia, and the right one depends less on the car than on who is buying it and why. A private buyer using the vehicle for personal trips has different options to a sole trader using it for work, and the treatment of each is different again.
The five car loan types set out below are the ones you will come across most often: a consumer car loan, a chattel mortgage, a commercial hire purchase, a finance lease and a novated lease. Some are open to anyone, some apply only where the vehicle is used for business, and one of them involves your employer. Reading through them is worth the few minutes it takes, because an unsuitable structure is harder to unwind later than it is to get right at the start.
Car Finance Options
- Standard consumer loan (bank, credit union, etc)
The financier lends the customer the money to buy a new or used vehicle. It can be secured (the asset as security) or unsecured (higher interest rate). If the vehicle is the security on the loan then it will be required to have full comprehensive insurance. Finance can include on-road costs and payments can be fixed with loan terms up to 7 years.
- Chattel Mortgage
A fixed loan where the financier advances money to buy a vehicle. The financier holds a mortgage over the car which is used as security for the loan. The chattel mortgage requires the vehicle to be used for less than 50% personal use, meaning it is a commercial loan. Motorists can finance the total purchase price of the car or can make an up-front deposit or can use a trade-in. A balloon payment may also be placed at the end of the term. Repayments can be fixed on lower interest rates as its secured. Interest and depreciation is tax deductible.
- Commercial Hire Purchased
The financier buys the car and then rents it to the consumer over a set period. Can be for individuals and businesses. Monthly payments generally pay out the entire car loan in the set period and the vehicle is transferred to the motorists when all payments are complete. Mostly replaced by chattel mortgage
- Finance Lease
The financier buys the car and then leases it to the motorist. This offers the immediate use of the car with little or no capital outlay. These leases are available for individuals and businesses where the car is for business purposes. The motorist pays fixed, monthly rental payments and is financially responsible for the maintenance and trade-in residual risk of the car. At the end of the lease period, the motorist is given the option to refinance, return, sell or buy the car for the residual amount. The lease payment comes out of the customer’s pre-tax income. Total repayment is tax deductible but GST is payable
- Novated Lease
A three-way arrangement where the employee’s wage is reduced (salary sacrifice) in exchange for an equal value of vehicle benefits. The employee leases the car directly from the financier. The employer has the obligation to pay the financier through a novated deed on the employee’s wage. All operating costs of the car – registration, insurance, servicing, tyres, etc – are covered by the motorist. The motorist has sole responsibility for the car on termination of employment.
Which of These Car Loan Types Suits You?
Narrowing it down usually comes back to three questions. Is the vehicle for personal use, business use, or a mix of both? Do you want to own the car outright at the end of the term, or would you rather hand it back and upgrade? And does your employer offer salary packaging?
If the car is purely personal, a consumer car loan is the usual starting point. If you are a business owner or sole trader and the vehicle earns its keep, a chattel mortgage is worth understanding properly, and worth raising with your accountant. If your employer offers packaging, a novated lease changes the sums considerably. Rather than guess between the car loan types, talk it through with someone who arranges them every day.
How to get a car loan?
If you are still unsure about which car loan is most suitable for you and your aspirations, contact us below. Our Vehicle loan Specialist is always happy to assist and provide a Free assessment.
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