You have been looking for a vehicle of your dreams or for your business and you have found the car you want. What about finance? There is a chance you could get carried away with your find and lock yourself into a financial agreement that does not suit your lifestyle options or does not adequately take into consideration your repayment ability.

Ideally you will look into financing before you look at making a vehicle choice. However, sometimes it may require you to search for appropriate vehicles first to establish a suitable budget. So, at times, the two can go hand in hand. There are many finance options and choosing wrongly or quickly can cause major headaches as time goes on.

Let’s have a look at the two most obvious types of vehicle finance: Car Finance Broker versus Dealer Finance.

Car Finance Broker

This financial service is an independent lender outside of any particular market such as motor vehicles, boats or real estate. Their focus is on the terms, agreement and the credit amount being offered. They have an obligation to assess a debtors circumstances before offering any amount for lending.

Here are the benefits of using a car finance broker

*They offer a range of car loans for both personal and business including:

-Secured

-Unsecured

-Novated Lease

-Finance Lease

-Commercial Hire Purchase

-Chattel Mortgage

*Links to multiple lenders and partners to obtain credit – chosen by the broker and customer together

*Offer multiple finance terms to suit customer circumstance

*Professional and registered financial lenders

 

Disadvantages of Car Finance Brokers

*Co-ordinate the offers from multiple lenders they may prioritise particular lenders

*They offer multiple loans and may not have extensive expertise with car loans compared with Car Dealer Finance

*They do not have direct access to vehicle purchasing

 

Dealer Finance

This financial service is directly related to the car dealer and offers a financial service in order to sell the vehicles on their lot. As such using dealer finance means you are subject to the vehicles available to them. They are aware of financial competition and do work with the customer to find appealing financial agreements to suit their needs.

Here are the benefits of using Car Dealer Finance

*They are well educated in the value of vehicles for purchase

*They specialise in car loans and finance and are aware of potential issues and advantages

*Interest rates available through other institutions are matched by car dealers

*Convenience of obtaining finance at the venue for purchase

 

Disadvantages of using Car Dealer Finance

* Harder to negotiate on the purchase price of the car – potential to pay hundreds of dollars or even a few thousand dollars more than using non dealer finance.

*Limited lines of credit available which means less flexibility in rates and repayment schedules

*Inflated loan establishment fees

*Monthly loan account fees

*Penalties for paying loan off early

 

Overall any financial choices should be done with research and preparedness. This is a serious commitment that you must be sure you can fulfil. Seek advice from both car dealers and financial brokers to determine the deal which best suits your needs.

A vehicle is an important part of a functional business. There are many ways you can contribute the use of a vehicle to business expenses, but if this is combined with personal use the tax credit system and application can become quite time consuming. Having a vehicle used solely for business is the best way to record the use of it for tax purposes. Sole traders, companies and partnerships have five main options available to them. Here are some of the main types of business car finance explained.

1.       Novated Lease

An agreement made between an employer, employee and finance company. This results in the employee undertaking a Car Lease or Finance Lease with a creditor, but where the employer takes the financial obligation such as monthly repayments and under the salary sacrificing arrangement extends the use of the vehicle to the employee.

The benefits of this are control, choice and portability for the employee as they are in charge of maintenance, choosing a car to suit their needs and the ability to take the vehicle with them should their job change. For employers there is no residual risk, limited administration needed to organise the arrangement and a reduction in pay-roll tax and WorkCover premiums.

2.       Fully Maintained Novated Lease

This type of business car finance is the same as a Novated lease except that in addition to the salary sacrificing the expenses associated with the vehicle are used as deductions against the employee’s pre-tax income. The system for maintenance and fuel costs are organised with the financier.

The benefits of this type of arrangement for employees is that they save money by minimising tax and GST associated with the car itself and the maintenance costs. For the employer they can offer a more tailored remuneration package that costs the business very little in terms time, effort and risk of excess of vehicles if an employee leaves.

3.       Chattel Mortgage

This allows a customer to purchase a vehicle through advanced funds by the creditor who has taken out a “mortgage” on the vehicle to secure the loan done by registering a Fixed and Floating Charge with ASIC. Once full repayment is received the ASIC charge is removed enabling transfer of the title.

Benefits include knowing the cost in advance, tax breaks when used for business, fixed interest rates and GST advantages for input credit.

4.       Finance Lease

A financier purchases a car based on the customer’s needs and leases the vehicle to them offering a fixed monthly lease rental for an agreed length. When the lease term has ended the customer can choose to pay a final instalment and obtain ownership, trade the vehicle for value or re-finance the residual and continue leasing.

The benefit of this arrangement means flexibility in the contract terms, residual amount and repayment schedule. There are also fixed interest rates, tax breaks and GST benefits.

5.       Commercial Hire Purchase

The creditor secures and pays for a vehicle on behalf of the customer to hire it to them for an agreed time frame. During this time the customer is open to use the car, but remains a leaser only. Once the hire term ends and a total price including interest, but minus residual costs, the customer becomes the owner.

The benefit of CHP is that finance is secured against the vehicle which results in fixed and lower interest rates. Also a deposit can be used to minimise the regular payment amount as well as the balloon or residual payment.