Are you planning to buy a car and need financing options? Motor vehicle financing is a popular way to purchase a new or used car in Australia.
Owning a car is important for everyday activities like going to work. Many Australians are not fortunate enough to purchase their desired car with cash, meaning they are required to turn to alternative ways to purchase their vehicles. That is where motor vehicle finance comes in.
If you are looking to buy a new or used vehicle, this blog is for you. In this article, we will guide you through the different types of motor vehicle finance available to you in the market so you can choose which is right for you.
A secured loan in motor vehicle finance is when the vehicle being purchased is put up as collateral. That means the finance company provides the loan and the individual provides the vehicle as security. If the person purchasing the vehicle is unable to repay the loan, the finance company will reclaim the car to cover the unpaid debt.
As the vehicle can be reprocessed by the lender, secured loans are considered less risky and will generally have lower interest rates for borrowers. In this type of vehicle finance individuals do not own the vehicle until it is fully paid off.
An unsecured loan is considered the opposite of a secured loan, as the vehicle being purchased is not put up as collateral. The person purchasing the car borrows money from the lender and pays it off with interest like a regular loan.
The catch is unsecured loans typically have higher interest rates than secured loans as the loan is riskier. If the purchaser is unable to make repayments, they are not required to give up the car as collateral. In this type of vehicle finance, the borrower owns the car from the outset.
Dealer finance in motor vehicle finance is where the car dealership provides a loan for the person purchasing the vehicle. Dealer finance is a popular option as it is fast and convenient for the buyer, rather than going through other lenders like a bank.
As this type of motor vehicle finance is easier for the purchaser, it often comes with higher interest rates compared to alternative financing options. Some dealerships may increase their car prices to create the illusion of cheaper borrowing rates.
Using a Mortgage
Individuals can also use their mortgage as a motor vehicle finance option. The vehicle purchaser can borrow against the equity they have in their home. This means the interest rates being paid on the loan will typically be cheaper than other options, although it will increase their mortgage debt. It’s best to speak to a mortgage broker when it comes to refinancing your home.
If you are considering this option, you should think about the long-term effect it has on your mortgage repayments and if it suits you.
A novated lease agreement is a finance option that involves an employee, their employer, and the finance provider. An employee selects their desired vehicle, then the finance provider purchases the vehicle.
The employer uses the employee’s pre-tax income to pay the lease payments. This means the employee reduces the amount they pay on tax. In a novated lease agreement, fuel, maintenance, and insurance are all included in the lease meaning the employee does not directly pay for them.
At the end of the novated lease, the employee has the option to purchase the vehicle at its residual value.
If you would like to learn more about novated leases and the benefits of leasing an electric car, click here.
A standard lease is like a novated lease, but the employer is not involved in the agreement. The employee selects a car, the lender purchases it, and the lease payments are sent from the employee to the lender.
At the end of the lease agreement, the employee can purchase the car from the lender, at the car’s residual value.
Personal Loans & Credit Cards
Taking out a personal loan or using credit cards can be used to finance a vehicle. Someone may use a credit card to finance a vehicle as many credit card companies offer a variety of benefits like reward points or even interest-free periods.
Personal loans can be beneficial as they may allow people to borrow more money. Personal loans and credit cards have high-interest rates than other finance options and can be very costly over long periods of time. Often using personal loans and credit cards can result in combining debts after a period of time through a debt consolidation exercise.
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