A Car Loan is a specific loan that is used for the purchase of a car, they mainly fall into two categories; Car loans for those who are employed (PAYG) and Car Loans for those who are self employed.
SECURED CAR LOAN
A secured car loan is very similar to home loan where the bank/lender takes security of the car you are buying in exchange for a cheaper interest rate. All car loans are fixed rate loans and terms that vary from 1 to 7 years but are typically 5 years.
This is the most common car loan product for people on wages.
Advantages
Cheaper interest rate, as the car is secured the rates are sometimes half of that of a personal loan
Disadvantages
Penalty for early payout, bank takes security over the car; If a bank takes security over the car and the customer fails to pay it, the bank will then take the car back and sell it to recoup its costs
There are several type of car loans when it comes to self employed people, below are the most common and brief description for each.
CHATTEL MORTGAGE
A chattel mortgage is very similar to home loan, where the lender takes security over the asset you
are purchasing until the asset has been paid off. (The asset is usually a car, but can be a truck, yellow goods or any type of business equipment) Once the asset has been paid off the mortgage will be removed. All chattel mortgages have fixed interest rates.
Advantages
The rate is a lot cheaper as the asset is secured.
There are several tax advantages when the asset is being used for business.
Can include balloon/residual payments to help lower repayments.
Disadvantages
A mortgage is held over the asset until it is paid back in full
LOW DOC CAR LOANS
This is our most popular car loan.
Low doc car loans are for businesses or self-employed people who have yet to complete their financials for the current tax year, or even for businesses who have completed.
To qualify for this loan the business or applicant must be;
1. Self Employed for a period greater than 2 years (but on occasions can be 1 year);
2. Have a clean credit file; (no defaults or judgments, or late payments with current car lender);
3. Be a property owner or have a 20% deposit. (occasionally a 10% deposit)
This is all that is needed to qualify for these loans, and more importantly the rates are some of the best in the marketplace.
These loans are for loan amounts up to $70,000 as general rule.
Finance Lease
A finance lease is when the lender purchases the car on your behalf, then leases it back to you.
When the lease is finished, you then have the option to buy the car from the lender (for the residual value agreed upon at the start), refinance the residual value, sell the car, or start a new lease with a new car.
The advantages of a lease are that the monthly payments are usually tax deductible. (please check with your accountant)
Leases usually range from 1 to 5 years and as all car loans the rates are fixed.
NOVATED LEASE
A novated lease is a lease where the employer leases the car from the finance company and provides it to the employee.
With a novated lease the employee chooses the car, but the employer gets the tax benefits. If the employee leaves they are then responsible for continuing the payments.
The main advantages for a novated lease are the tax benefits associated with it (please check with your accountant)
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