Vehicle finance
Before you apply for a loan, check out what your vehicle of choice is going to cost, by looking in
newspaper classified columns and magazines, you can also check out prices on the internet.
Work out how much you can afford in monthly repayments, taking into account ongoing costs
such as:
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Registration
Regular maintenance
Insurance
Petrol
Replacement of tyres.
Shop around for the best deal. Do not just compare interest rates. Look at the total cost of each
loan including:
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Loan establishment fees
Ongoing fees
Penalties for paying your contract out earlier
Lump sum payments at the end of the loan (Balloon payments)
It is best to arrange the finance before you go car shopping, because:
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The money will be available when you need it
A pre approved loan can give you cash in hand bargaining power
The choice of who to arrange finance with is yours, instead of having to make a hasty
decision when buying the vehicle.
BEWARE:
There are many different types of finance available. Make sure you are getting the type that is
right for your circumstances.
Dealers are often on commission from finance companies.
They can over inflate the vehicle price & often try to cover up the true cost of the loan, by only
telling you the weekly cost of the repayments.
Nowadays you see many tales of woe on the consumer affairs programs, where people have been
ripped off by finance companies & dealers. DO NOT BECOME ONE OF THEM!
Read ALL the paper work you are asked to sign thoroughly. If you do not understand it, ask for
a full explanation. If you still do not understand, take it away to study properly & get someone
else to explain it to you.
Anyone can get a vehicle loan…bad debt, bankrupt, arrears etc ……….but …..AT A PRICE!
Make sure the price you are paying is the right price.
TYPES OF FINANCE
CASH:
Always a great option, as having the cash gives you the opportunity to negotiate a good discount & better deal.
PERSONAL LOAN:
Personal loans can be secured against property, such as your home, or unsecured. You will usually pay a higher
interest rate for an unsecured loan. It can work in your favour in the same way as cash if you have already obtained
the loan before selecting your vehicle.
There are hundreds of loans available, both through banks & recognised institutions & some rather more dubious, so
you should do your research carefully before proceeding.
HIRE PURCHASE:
Individual Car Loans
This is a typical consumer Car Loan which is used by an individual to purchase a motor vehicle, boat or other asset.
A consumer based Car Loan requires the goods to be used as security for the Car Loan contract. This facility falls
under the consumer credit code (UCCC) where the interest rate, commission and other fees are disclosed on the
contract. All consumer credit conditions apply to this type of Car Finance.
A Secured Car Loan can give you immediate use of the vehicle of your choice in exchange for regular payments over
an agreed period of time.
Commercial Hire Purchase
A Commercial Hire Purchase Car Lease allows you the freedom to borrow 100% of the purchase price or less if you
wish to make a cash or trade deposit and gain immediate equity in the goods.
Repayments may be structured to suit your business cash flow requirements including the inclusion of a balloon
payment at the end of the Lease term. Security is generally limited to the goods being financed, keeping your business
assets free for other purposes.
This Commercial Hire Purchase solution will suit businesses that see benefit in gaining automatic ownership of the
goods when the final payment is made.
FINANCE LEASE:
A Finance Lease or Car Lease is an arrangement between the finance company (the lessor) and the client (the lessee);
whereby the Car Finance company agree to rent a particular piece of equipment over generally a set term with a
predetermined residual value.
The Lessor obtains legal ownership of the car to be leased, by paying the amount as advised on the (vendor's)
supplier's invoice. The Lessee then has the use of the car and pays rent for that use for the term of the car lease
contract. During the term of the Finance Car Lease agreement, the Lessee merely pays rent and does not obtain
ownership or equity in the car they are leasing. Under a car lease agreement, the Lessee is responsible for
maintenance and running costs, car insurance and registration fees for the leased item.
NOVATED LEASE:
A Novated Car Lease is a three-way agreement between
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A car financier;
Your employer;
An employee (you!).
You obtain Car Finance for a car of your choice from the Finance provider for a fixed period of time. Your employer
then takes the repayments out of your “pre tax” salary, doing a “salary sacrifice”, thus reducing your taxable income.
While the contract for the finance is between you and the finance provider, if you change jobs, you take your Novated
Lease and your car with you.
At the end of the term of the Novated Lease you have the option to purchase the car for a set residual, or you can sell
or trade. If you find you make a profit from selling the car, then it’s your's to keep!
Types of Novated Lease
There are five types of novated leases
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Fully Maintained Novated Lease, all the operating costs of the vehicle are covered, such as car insurance,
vehicle registration, fuel, tyres and servicing. In this instance you pay a regular monthly payment, and the
Novated Leasing company covers all maintenance expenses;
Non Maintained Novated Lease, In this case you are responsible for all operating expenses associated with
the vehicle;
Novated Bike Lease: Motor Bikes (available as fully maintained or finance only)
The legislation does not require the same level of detail as is required for valuing car benefits. This takes
into account the type of vehicles involved, their expected high business use, and their general lack of
suitability for significant private use;
Detailed logbook requirements of the kind specified for calculating the value of car benefits are not required
for vehicles other than cars. However, many businesses would maintain some form of logbook records and
these should be used, where possible, in determining the extent of private use of the vehicle.
In the absence of such records, soundly based estimates of the number of private kilometres travelled are
acceptable. For example, you could determine the home to work component of private use by multiplying
the number of journeys during the year by the distance between the employee's residence and place of
employment.
Novated Operating Lease; A Novated Operating Lease is exactly that! Its the best of two types of Car leases,
a Operating Lease and a Novated Lease. It allows an employee to receive a tax benefit on a vehicle every time
they get paid and at the same time, the employee has no residual risk for the car. The vehicle is just handed
back to the finance provider at the end of the car lease term.
A Novated Operating Lease is easy, get the go ahead from your employer, choose a motor vehicle, decide on the term
and work out how many km's you will travel each year. Your employer will pay a monthly Car Lease payment that
includes all scheduled servicing and take this from your pre tax salary. At lease end, you just hand the motor vehicle
back to the finance provider.
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Fully Maintained Novated Operating Lease, as above, with full maintenance options.
Features of a Novated Lease?
There are numerous benefits of a Novated Lease including
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The ability to cost effectively package the car of your choice. This process is completely flexible and only
limited by how much you are able to allocate from your salary;
The car is yours to use 100% of the time, it’s not a company car;
Repayments can be fixed over a period of 1 to 5 years;
As all costs are paid in pre tax dollars, a Novated Lease can be tax effective;
As a vehicle purchased under a Novated Lease often qualifies as a company car, you can usually obtain fleet
discounts on all new cars;
A Novated Lease is portable and may be re novated from one employer to another (depending on employer
acceptance).
CHATTEL MORTGAGE:
A Chattel Mortgage is a Car Lease that allows sole proprietors, partnerships and companies using the 'cash' method
of accounting for the Goods and Services Tax to claim back the GST on the vehicle's purchase price on their next
Business Activity(BAS). There is also a charge lodged by the Finance Provider with ASIC.
SALE AND LEASE BACK:
A Sale and Lease or Hire Back agreement involves the finance provider buying the client's existing fleet of owned
vehicle(s) at a fair market value. These vehicle(s) are then leased or hired back to the client on a Car Lease or CHP
for an agreed term.
SECOND CHANCE VEHICLE FINANCE:
These are also known as Bad Credit Car Loans, this range of Car Loans is offered to customers who have previous
adverse credit history.
Tip. Before you proceed with second chance finance, it is a good idea to receive a copy of your Credit History.
DEALER FINANCE:
Unless the dealer is licensed, it is illegal for them to offer any kind of finance.
However many smaller less reputable dealers offer what they call “tiny terms”. Basically this is a private agreement
between the dealer & purchaser. BEWARE ! The interest rate is usually extortionate, although the weekly payments
may seem reasonable & the vehicle will not be transferred to you until payment is complete. If you miss a payment
they will probably recover the vehicle. This is sometimes the only option for people with severe credit problems &
unscrupulous dealers will play on this.