Navigating your car finance options can be a stressful and overwhelming experience. But it doesn’t have to be. Thanks to our simple guide on types of car finance, confident decision making is only a step away. Here’s all the information you need to get started.
When you need a car for personal use
Secured car loan
A secured loan is referred to as a ‘secured’ loan because the car you’re buying is held as security against the loan until it’s paid out. So if you miss or fall behind in your repayments, the lender can sell the car to recover the debt. Secured loans often come with lower interest rates and flexible repayment terms and are a good option when you’re buying a car purely for personal use and salary packaging isn’t an option.
Also referred to as salary packaging, a novated lease is a three-way arrangement between you, your car finance provider and your employer. Put simply, the financier buys the car and leases it to you. Your employer then takes a fixed, monthly payment from your pre-tax salary that covers your repayments, maintenance and running costs and pays it to the financier. At the end of the lease you can either sell or buy the car outright. Offering significant tax savings, they can be used for new or used cars intended for purely personal use.
When you need a car for business use
Under a chattel mortgage, you borrow money from a lender to buy ‘moveable’ property – in this case, a car. The lender secures the loan against the car (much like a secured loan) and holds the mortgage until the loan is repaid. You can either finance the total purchase price or pay a deposit or use a trade-in to reduce the loan amount. Thanks to minimal capital outlay, flexible contract periods and significant tax advantages, it’s a great option for business owners.
Low doc loan
Low doc loans are particularly popular with sole traders or business owners who’ve been operating for more than two years and have been ABN registered for more than 18 months. Applicants for low doc loans don’t need to hand over all their financials and/or tax returns to have the loan approved, making it a great option for busy business owners. The pricing structure is like a full finance loan but remember you must be able to prove the vehicle is going to be used for commercial purposes.
Under an operating lease, the financier buys your vehicle and rents it back to you. Because the finance provider retains ownership of the car, you assume none of the risks associated with ownership, including the residual payment at the end of the lease period. You do however have the option to buy the car, continue to rent it, or change to another vehicle at the end of the lease. Your repayments are fixed over a set period and bonus, your rent is tax deductible too.