Explanation Of Car Finance Options

What types of car finance are available?

car finance optionsAn important part of the process of buying a car is arranging how you are going to get the funds for it.

Sounds simple enough, however there are actually numerous options available to come up with the cash for your vehicle purchase and many of which people do not fully understand, or do not even consider in the first place.

In this article, I will break down the finance options available and their definitions:

Chattel Mortgage
You own the vehicle from the outset, but the finance for it is secured by a bank. Often the loan amount is 100%. So whilst it becomes your property, you do not need to fork out the upfront cash for it, rather making monthly payments to the lender. Many business owners opt for Chattel Mortgages due to tax advantages such as claiming GST back upfront.

Finance Lease (tax based)
With this option, you also make monthly payments, however do not actually own the vehicle. A bank or lender owns the vehicle and leases it to you. One advantage of this is that the monthly lease payments may be tax deductible for you if you are a business owner. You may have the option to buy the vehicle at the end of the lease term, or upgrade to a new one.

Novated Lease
A novated lease allows you to have car payments deducted from your pay by your employer. You choose the car, but your employer effectively covers the rental obligations between you and the lender and re-coups their payments by deducting the equivalent amount from your pay. Businesses use this as a way to cost-effectively facilitate vehicles for employees. You get the benefit of using pre-tax dollars to pay for something you would normally have to pay for with your after-tax money.

Hire Purchase Agreement
In this form of financing, you choose the car, but the bank purchases the vehicle and hires it to you. You make a set monthly payment and after the last hire payment has been made, the ownership of the car is transferred to you. This form of agreement helps with cashflow for business owners that do not have the funds available for a vehicle purchase. It also has some potential tax benefits.

Personal Loan
You can of course get a personal loan to buy a car. This negates any tax advantages as it is made in the personal name, however if you do not have a business then this may not be a factor for you.

Credit Card
Sounds a little odd because people usually associate credit card debt with high interest payments, however with the range of low interest rate cards available, and if the car purchase is not a significant amount (under $10,000 as an example), using a credit card to buy a vehicle may be a viable option. Some lenders will not loan small amounts for car loans, making credit card purchasing even more attractive.

Cash payment
Of course, if you have the fund available, you can pay out of spare cash or through offloading your vehicle to a cash for cars company for a quick sale. You might draw on equity in your home loan or go the old briefcase method and pay in cold hard cash!

As you can see, there are many options available. Have a talk to a reliable loan broker about your options.

Many people require a loan quite quickly, so I have put together a helpful guide to getting your loan approved quickly that you can access here.

For a details overview of car loans and car finance options in Australia, click here.