Car Loans: A Guide to Your Options

How Car Loans Work, and How We Can Help

Through our relationship with a firm that solely specialises in asset finance and personal loans, we can assist you with car loans and novated leases.

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Common Types of Car Finance

The Main Car Loan Types

These are the main types of car finance. Tell us what you need, and we’ll have a specialist contact you.

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Types of car loans

Car finance differs for personal use and business use. These are the main types lenders offer.

Chattel mortgage

Ideal for businesses, allowing you to own the vehicle while paying it off, with tax benefits to explore.

Commercial hire purchase

Gain eventual ownership of the vehicle after completing all payments, suited for companies and sole traders.

Finance lease

Lease vehicles for business use with the option to purchase at lease end, offering immediate use with minimal capital outlay.

New car loans

Finance for brand-new vehicles, for personal or business use.

Dealer purchases

Finance arranged through the dealer when you buy. Compare the total cost, not just the rate.

Self-employed car loans

Specialised loans designed for self-employed individuals, acknowledging varied income sources and providing flexible criteria.

Bad credit car loans

Loans for people with a poor credit history, usually at higher rates.

Novated leasing

An employee benefit that lets you lease a vehicle using pre-tax income, potentially lowering taxable income and saving money.

Commercial hire purchase

Finance company purchases car on your behalf and you “hire” it back for a fixed monthly fee.

▪ Car will be owned by the finance company. You take ownership once all payments, including the residual, are made.
▪ If car is being used for business purposes you may be able to claim a tax deduction on interest charges and depreciation as well the GST on the purchase price as an Input Tax Credit on your BAS.

Finance lease

Finance company purchases car on your behalf and leases it back to you for a fixed monthly fee.

▪ Car will be owned by the finance company. You may take ownership once all payments, including a residual, are made.
▪ If car is being used for business purposes you may be able to claim a tax deduction for the lease payments as well as claim an Input Tax Credit for the GST on each lease payment.

Novated lease

Three-way agreement between an employee, their employer and a finance company to purchase and finance a vehicle for the employees use.

▪ Employee agrees to “salary sacrifice” a portion of wage in return for the vehicle and all running costs.
▪ Can be tax-effective since a large portion of the ongoing payment comes from pre-tax income.

Consumer car loan

Consumer car loans (sometimes called secured car loans) are available with no deposit, and up to 7-year terms. Consumer car loans are designed for those wanting to purchase a vehicle for private use.

▪ Loan term up to 7 years
▪ Purchase a car without a deposit

Self employed car loan

For those that are self-employed there is, in fact, a range of products that may suit your circumstances and cash flow. However to qualify you must –

▪ Have a registered ABN.
▪ Be self employed and show tax returns for at least a 2 year period.
▪ Be able to demonstrate proof of income and ability to repay the loan based upon that income

Dealer purchase loans

Dealer financing is a type of loan that is originated by a retailer, provided to its customers and then sold to a third-party financial institution. Finance like this typically carries additional fees such as:

▪ Service and Administration costs billed either monthly or as a once off payment
▪ Loan establishment fees
▪ Documentation and facilitation costs

FAQs

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These offers sound great in theory but are they really the deal of the century they are portrayed to be? The short answer is usually “NO”. There are usually a few catches to these low rate offers as follows:

You normally have to pay the recommended retail price of the car and it is not negotiable. Shopping around or using a new car broker will normally save you thousands of dollars of the retail price, resulting in a lower required loan amount and possibly a lower loan repayment, even with a higher interest rate.
Lower trade in values are generally offered if you are trading in another vehicle.
The loan is usually less flexible in respect to the length of the loan term etc.

When it comes to car loans never compare them on the basis of interest rate but instead compare the monthly repayment. You may be quoted a cheap rate but there may be hidden charges added to the loan amount which results in the repayment amount actually being higher. When comparing the repayment amount you need to also ensure that both options have the same loan term and the same residual or balloon payment (if applicable).

The most popular loan type these days is the Chattel Mortgage. Please consult your accountant before deciding which type of finance to use

A car loan is secured by the car being purchased, whereas a personal loan is often unsecured. Due to car loans being secured they generally offer lower interest rates than personal loans as well as potentially higher loan amounts.

Give us a call or send us an email and we’ll talk through how we can help.

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