Types of Car Loans

Personal Loan

A personal loan is generally used to finance common expenses such as home renovations, consolidation of debt, holidays, medical expenses/procedures and much more. Although, personal loans can be used to finance a car loan or any other vehicles, it is not always the cheapest method of  doing so. When looking for a personal loan, it is important to take the interest rates into consideration as they tend to vary greatly depending on the loan provider.

Car Loan

Car Loan or Car Finance is normally very similar to personal loans but will normally carry lower interest rates. This is due to the fact that the financier (the lender) will use the vehicle you are purchasing as security towards the loan. As with personal loans, the interest rates and fees/charges for car finance vary greatly depending on which lender you go with so using a trusted online broker (like  Blink Finance or Zoom Car Loans) can often save you thousands of dollars.

Usually, the determining factors on how car loan interest rates are calculated are as follows

• What is the risk involved to the lender? Lenders will assess you based on your credit score, your income/expenes and overall stability.
• Loan amount, term of the loan and fixed/variable interest rates and how much its going to cost the lender to lend you their money.
• Are you asset backed (i.e own your home) or have you got a proven record of paying out loans as per the agreement.
• Balloon/end of term lump sum payment calculations

Chattel Mortgage

Chattel Mortgage is a loan product designed for business use vehicles. The business owns the vehicle and the financier uses that vehicle as security towards the loan. The interest rates are generally the lowest of all business loan types as the vehicle is secured against the mortgage. Some of the benefits of taking out a chattel mortgage are

• Contracts 12-60 months with residual payment options to suit all business budgets
• Fixed interest rates with fixed repayments
• Tax deductions appropriate to business use
• GST portion of mortgage is claimable (if GST registered) & no GST is charged on repayments

You should always speak to your accountant/financial planner to understand which option is best for your business

Commercial Hire Purchase

Commercial Hire Purchase consists of the financier (the lender) purchasing the vehicle on behalf of the client and then hire it back to to the client over an agreed period of time. The customer has the full use of the vehicle for the agreed term but is not the owner of the vehicle. Once the final agreed payment is made, the client obtains ownership of the vehicle. Please note that as of July 2012, there were wholesale changes to the GST treatment of the commercial hire purchase agreements making them a less attractive option. You should speak to your accountant to establish if commercial hire purchase is a viable option for your business.

Novated Lease

A novated lease is generally a three way agreement between an employer, employee and the lease company, under which the employee leases a vehicle from the lease company, and employer agrees to take on the employee’s obligations under the lease. The employer then makes the lease payments on behalf of the employee, and deducts them out of the employee’s pre-tax income. There are 3 standard types of novated lease:

• Novated Finance lease – Just the vehicle is leased
• Fully maintained novated lease – The vehicle and its running cost is added into the lease cost
• Fully maintained novated operation lease – The vehicle and its running cost is added into the lease cost and residual value risk is assumed by the lessor

All novated leases can benefit both the employee and employer-you should speak to your accountant/financial controller to establish which lease options most benefits your structure.