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[MoreMore Insights] Car Loan Guide

In Australia, purchasing a car may require a large amount of money. In order to help people achieve their vehicle dreams, car loans have become a common choice. Australian car loans can come from many different types of lenders: banks, smaller financial companies, or from the financial department of car dealership.



Who is Suitable for Car Loans


Firstly, compared to fully paid car purchases, car loans can help improving your cashflow. Alternatively, if you are good at investing, you can use the car payment as investment capital, and the investment income can be used to pay the car loan interest or even the principal. Finally, companies or individuals who want to use car loans to offset taxes can borrow money to buy a car, as there might be some benefits through car loans.


Application Requirements


To apply for a car loan, documents required would be last two payslips, car Invoice and driver's license etc. But for self-employed clients, fast track may be eligible with no financial documents required.



Advantages


Instalment payment: Buying a car with zero or low deposit reduces the burden of buying a car. The loan ratio can be up to 100%, and usually a new car can be fully financed, and the expenses related to your car can also be financed together. But in some cases, it is not possible to borrow in full, including second-hand car loans, TR work visas, or luxury cars.


Flexible selection of loan terms: Based on your financial situation and budget, you can choose the appropriate loan term. The term of the entire car loan is generally at least 12 months and at most 7 years. And you can also choose to have a balloon payment as well.


Early repayment option: Some car loan schemes allow for early repayment of the loan, thereby reducing the amount of interest paid.


Tax Benefits: Some car loans can also bring tax benefits and government benefits as well. For example, company car loan interest can be considered as company expneses. And buying a car now may also get you the benefit of instant asset write off.


Disadvantages


Interest expense: Car loans generate interest expenses, which increases the cost of purchasing a car.


Debt increase: Applying for a car loan means you will bear additional debt, which may affect your borrowing ability.


Value loss: Vehicles are depreciated assets. If you take out a loan to purchase a new car, you may face a situation where the vehicle value is lower than the loan balance.



Type of Car Loans:


Personal Car Loan


A personal car loan requires income to be applied for, usually with a higher interest rate.


Chattel Mortgage


Chattel Mortgage is a type of commercial loan that is suitable for commercial automotive loans. Sole Trade, Partnership, and Company may all apply for chatter mortgages without the need for income. The advantage is that car loan interest and depreciation can offset tax, and GST refunds can also be applied for, resulting in better cash flow.


Car Lease


As the name suggests, it means that the customer rented a car from a loan institution, and the loan institution owns the car. After the lease term expires, customers can choose to trade in the car and purchase a new car for a new lease, or pay the remaining amount to transfer the car to their own name, or refinance the car loan with the remaining amount while also owning the car.


Novated Lease


Novated lease is a type of car lease, which is a car rental contract between customers (employees), employers, and loan institutions. The loan institution will purchase the car and rent it to the customer, while collecting the customer's pre tax income from the employer to pay for the rental fee. Novated lease is suitable for high-income PAYG customers, who can use the pre tax income to pay for car rental, fuel, insurance, and road management fees.


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