You may be wishing for a new car, but your financial situation may not allow for the purchase. This is where car loans are important.
There are different types of car loans to get your dream car (like the new Kia Sorento).
You can shop around for a low-interest rate loan or the best credit provider, which will make it easier on your wallet. Below are different types of car loans to help your decision.
Types of Car Loans in Australia
1) Standard Loan
In this type of car loan, the financier lends the customer money to buy their new or used car.
It is the most common car loan, however, you will need to be ready for some ongoing fees or early repayment fees.
A standard loan is an unsecured or secured car loan – with unsecured loans having the highest interest rate. The vehicle itself is the security for the loan.
Benefits of standard loans:
- Finance can include on-road costs
- Agreed on monthly payments and time period.
- Low fixed interest rate or variable rate because finance is secured against the car.
- Flexible in terms of timing and repayment
2) Commercial Hire Purchase
For this type of loan, the financier buys the car and hires it to you for a set period of time. This type of car loan can be for individuals or companies.
The monthly repayments will pay off the entire loan over a determined period, whereafter the car is transferred to you once you have completed all your payments.
Benefits of commercial hire purchase:
- Flexible repayments allow for financing of the total price of the car, a deposit or trade-in, or a lump sum balloon payment.
- Fixed interest rates and monthly fees.
- Can be modified to suit your budget.
- Low capital outlay and no GST on repayments.
Read more: common mistakes people make while applying car loan
3) Finance Lease
The financier buys the car and leases it back to you. This will allow you to immediately use the car, with low or no capital outlay.
This type of loan is available for individuals or businesses. You will pay fixed, monthly rental fees, and you will be responsible for the maintenance of the vehicle.
At the end of the agreed-upon lease period, you will have the option to refinance, sell, buy the car for the residual amount, or return the car.
Benefits of Finance Lease
- Immediate use of the car with low or no capital outlay.
- Repayments are generally tax-deductible, but GST is payable
- Lease payment is made from pre-tax dollars
- The interest rate is fixed and is low
4) Novated Lease
A novated lease is a three-way agreement where your salary is reduced in exchange for vehicle benefits.
You will lease the car directly from the financier, while your employer has the obligation to pay the financier through a novated deed on your salary.
You are responsible for all operating costs of the car and have responsibility for the car if you are let go from your job.
Benefits of a Novated Lease
- You can buy the car at the end of the lease
- Can be leased for private use
- Allows you to sacrifice your salary with pre-tax income
- You can select your preferred car
- Employer benefits because it is a simple way of boosting a remuneration package
5) Operating Lease
An operating lease is a car loan where the financier buys the car and rents it to you.
The financier has ownership of the car, meaning you have no risk associated with car ownership.
At the end of the lease term, you can buy the car, continue to rent it, or change it for a new car.
Benefits of Operating Lease
- Businesses don’t have to list operating leases on balance sheets so doesn’t affect debt ratios
- Fixed repayments over a pre-determined period
- No risks with ownership and residual payments
- Rent is tax-deductible
Read More: car loan transfer how to get it done
6) Chattel Mortgage
Chattel mortgage is a fixed rate car loan where the financier provides money to you to buy a vehicle.
The financier has the mortgage over the car, and this mortgage is security for the loan. You can finance the purchase of the car, or offer an up-front deposit or trade-in.
At the end of the term, there may be a residual payment.
Benefits of Chattel Mortgage
- You take ownership of the car
- Low capital outlay
- Flexible contract
- Fixed repayments to suit your budget
- Repayments are exempt from GST
- Interest charged is tax-deductible.
- Lower interest rates
How to decide
To find the right car loan for you, you must consider all options, including non-car loans, like a personal loan (which can be a secured loan or unsecured loan).
Your car loan repayments must never exceed your monthly income, and you must investigate different car loan providers to compare different cheap car loans.
It can be daunting to apply for a car loan, but if you keep your wits about you, you will find the best low rate car loan that will allow you to get your dream car.
