Car Loans
Finance Lease
A finance lease is a commercial arrangement where:
- the lessee (customer or borrower) will select an asset (equipment, vehicle, software);
- the lessor (finance company) will purchase that asset;
- the lessee will have use of that asset during the lease;
- the lessee will pay a series of rentals or installments for the use of that asset;
- the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee;
- the lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option purchase price);
The finance company is the legal owner of the asset during duration of the lease.
However the lessee has control over the asset providing them the benefits and risks of (economic) ownership.
Chattel Mortgage
A Chattel Mortgage is a particular type of finance used by businesses for the purpose of purchasing a new or used vehicle or other business equipment.
A Chattel Mortgage is essentially a mortgage over goods to be financed. Chattel Mortgages are classed as a cash sale in that the goods automatically become yours on purchase and the finance company takes a mortgage over the chattels. However for tax purposes you can claim depreciation, running costs and interest paid, against your business income. The Chattel Mortgage allows businesses to claim the full input tax credit from GST incurred expenses immediately (next BAS statement).
Always seek advice from your accountant in regard to this.
Commercial Hire Purchases
A Commercial Hire Purchase for financing a car loans or other passenger vehicle has a number of main benefits:
- Choice of terms (loan lengths) ranging from 24 to 60 months (two to five years)
- Wide variety of residual value (balloon value) options, generally ranging from 0% to 60% depending on the type and age of the vehicle
- A deposit may optionally be used to reduce the size of the loan
- Tax deductions may be available when the car is used for business purposes
- Input Tax Credits may be available where the purchaser is registered for GST
- A Commercial Hire Purchase is secured finance, which allows lower interest rates
Personal Motor Vehicle Loans
There are two types of car loans available for personal use: secured and unsecured. Scheduled fortnightly or monthly payments can be made by direct debit, cheque, BPAY, internet banking, direct payroll, and cash where applicable. Insurance, warranty and loan protection can be added to the car loan.
A deposit is not required on most cases, but that will assist in your approval chances should you have a borderline application.
The loan is daily reducible, i.e. the interest is calculated on the unpaid balance daily, just like a home loan. Extra or additional payments will shorten the term and reduce interest charges. Although it is a personal use loan, depreciation and interest charges could be tax effective claims if the car/boat is for business or work related usage.
A variation known as the balloon payment or residual option is also slowly growing in popularity. By setting a larger balloon payment for the end of the term, which can vary according to circumstances, you can reduce your monthly payments to better balance your budget. At the end of the term, you can either pay out the full amount in one hit or re-finance the balloon amount and continue paying off the car over a new loan period.
Secured
Most personal use loans in Australia for cars, boats, bikes etc are secured. As an individual you are borrowing money to purchase a tangible item like a vehicle or boat which will be used as security for the loan. When you trade-in or sell you must then payout your car loan, and get a new loan if you require money to buy something else. Secured loans generally have a lower interest rate than unsecured car loans.
Unsecured
This is a very versatile loan, as it can be used for nearly any purpose including debt consolidation, for a holiday, weddings, or even cars & boats that do not qualify for the secured loans above. There is no security required for this type of loan, thus interest rates are slightly higher than secured loans.
