Choosing the Right Car Loan
There are several types of loans available to acquire a vehicle. Each one depends on your circumstances such as whether you are buying the vehicle yourself, you would rather lease one or you are hoping your employer can provide one in a salary packaging type arrangement. Have a good read through the explanations below so you will be fully informed when making your decision.
Consumer Secured Loan
If you are a consumer on wages or salary, this is the easiest type of loan to finance a vehicle. The loan will be a Fixed Rate, can generally be provided with or without deposit depending on your circumstances. It can be used to purchase a New or Used vehicle from a Dealer or Private source. The Term of the Loan can be adjusted to suit your situation, usually between 2 to 5 years, but can also be extended to 7 years on a New vehicle.
Chattel Mortgage (CM)
The Chattel Mortgage product is when a mortgage is placed over goods to be financed. A Chattel Mortgage is classed as a cash sale in that the goods will automatically become your property on purchase and the finance company takes a mortgage over the chattels. Like a Hire Purchase, you can claim depreciation, running costs and interest paid, against your business income. The chattel mortgage allows your business to claim the full input tax credit from GST incurred expenses immediately (next BAS statement).
The terms of both products are essentially the same, including the balloon payment at the end, but the Chattel Mortgage has become more popular over Hire Purchase since the introduction of GST and the Business Activity Statement (BAS) (refer to your tax advisor or accountant).
Hire Purchase (HP)
Hire purchase finance is an agreement between you and the lender to acquire a vehicle for your business use. During the hire term, the lender legally owns the vehicle and you make regular instalments to the finance company. For tax purposes you can claim depreciation, running costs and interest paid, against your business income. (refer to your tax advisor or accountant) When you pay off the loan in full, legal ownership is then transferred to you.
A Finance Lease is a commercial finance product, which enables the customer to have the use of a vehicle and the benefits of ownership, while the financier retains actual ownership of the vehicle. The financier purchases the vehicle on behalf of the customer, who then leases the vehicle back from the financier and pays a fixed monthly lease rental for the term of the lease. At the end of the lease the customer can either pay a residual value (final instalment) on the lease and take ownership of the car, trade it in or re-finance the residual and continue the lease.
A Novated Lease can be either a Finance Lease or it can be a Fully Maintained Novated Lease. A Novated Lease is a three way agreement between an employer, employee and finance company where the employee enters into a Finance Lease with the financier and the employer agrees to take on the employee’s obligations under the lease. If your current employment ceases for any reason, or the lease agreement is finalised, the Novation ceases and all obligations revert to the employee. It is possible to transfer the novation to the new employer if they agree.
Fully Maintained Operating Lease
A Fully Maintained Operating Lease, is a method of salary packaging a car and its operating costs, under which an employee leases a car from a fleet management provider and the employer agrees to take on the employee’s obligations under the lease, paying the monthly lease rentals and operating expenses from the employee’s pre-tax income. These can include such items as Fuel, Maintenance, Registration, Insurance and Tyres.
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