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Unless your ears have been glued closed, you'll likely have heard a lot of chatter about interest rates lately.
But just in case you somehow missed it, allow us to cut the story down to size for you; interest rates are low and likely to get lower (courtesy of our lagging economy). And while they’re almost always mentioned in relation to home mortgages, they have anloas, too. Which means? When official rates are high, car loan rates are, too. But when they’re low? Well, it might just be time to get shopping.
So to help with that exact mission, we're breaking down the different types of car finance available to help you work out which is the best option for you.
This sounds more complicated than it is - as if you’re taking a loan on one of Henry VIII’s wives, but it really just means that you’re mortgaging the vehicle, only taking full possession (or ownership) once all the required payments have been made.
Think of it as a like a home mortgage, then, with the house only truly yours once you've paid the bank in full for it.
The key difference between a chattel mortgage and a regular secured loan (in which the vehicle is the security, with the lender able to sell it if you’re unable to make the repayments) is that this particular finance agreement most commonly applies to business purchases, unlocking all kinds of tax deductions and GST claims if the vehicle is used primarily for business purposes.
But like any loan, you select a length of agreement, and your payments (be they monthly or weekly) are calculated accordingly.
Novated car lease
A novated lease introduces a third party into the car-car-purchasing arrangement, with your employer joining you and the lender. It's a bit hard to get your head around at first, because what you're basically being asked to do is to pay for something you won't every actually own. Hence the "lease" part of the car-leasing deal.
Essentially, a novated lease means that your employer is a party to your purchasing agreement, and allows you to pay for your vehicle as part of your salary package (handily saving them some money as well), by paying your car payments for you out of your pre-tax earnings. Your income tax is then calculated on your now-reduced salary.
One final tax bonus is that you don't have to pay GST on the purchase price of a car when you're not buying it, which lowers the cost by a further 10 per cent.
Most car loans you encounter will be “secured” loans, which basically means the vehicle itself is acting as your collateral.
Much like a bank lending you money for your home, the car is given a particular value by the lender, which knows that, should you fail to pay up, it will at least be able to recoup some of the funds by selling the vehicle. That's a secured car loan.
You’ll find secured-loan interest rates are usually lower than unsecured rates, largely because the lender rightly sees them as a less risky than just handing over wads of cash with nothing to reclaim should things turn sour.
Secured car loans are probably the most common form of lending for a car purchase, because they're very easy to understand, for both parties, and are often used for new and used-car purchases.
New from dealer
Have you ever seen an ad that reads “0.1 per cent comparison rate”? Perhaps on a flag outside a dealership?
That’s because car companies or their dealer networks can organise their own finance for the vehicle purchase, and there are times when the rates they offer (usually during sale periods or when there is excess stock to move) are better than anything you might find from a traditional lender.
Alternatively, a dealership might be simply happy to do the heavy lifting for you, essentially applying for credit from a lender on your behalf. And what's more, they'll be keen to get the deal done, which means even if you have bad credit, you can be driving away in a car that very day, thanks to a same-day car loan.
But remember, if something sounds to good to be true, it often is. Demand to know the total repayment figure on your loan, and what the total purchase price will be, including all fees. And then compare that price with what you can get from an outside finance company - your bank, or some other lender - and how cheaply you can get the same car if you bring your own finance.
Using a broker
You know how there’s a huge broker industry surrounding home loans? Well, there’s brokers for every other type of finance, too, including car loans.
The idea is that you contact a car loan broker with an idea of how much money you’d like to borrow, and whether the loan is secured or unsecured, and then leave it up to them to compare car loans in Australia.
A good broker will then assess your eligibility against a range of lenders, and come back to you with the best interest rate they can find, providing you a list of the best car finance rates in Australia. Well, that’s how it works in theory, at least.
The broker is then paid a commission from the lender you choose (and sometimes an ongoing commission for the length of the loan, known as a “trail”), and you save a whole heap of legwork, and might even secure a low-rate loan you might not have otherwise known about.
Best rate for car loans in Australia
The interest rates for major lenders (like the big four banks) are typically higher than they are for smaller lenders. And that’s certainly true of automotive loans.
How much will my repayments be? Cheap car loans Australia
To see just how much of a difference a cheaper rate can make, we’ve worked out the repayments on a $30,000 loan over five years for car loans in Australia.
At 8.49 per cent (the banks' rate), your monthly repayment is $632.48, which will see the debt paid off in five years. But at 5.34 per cent, that number drops to $459.20, with the loan repaid over the same amount of time.
How to negotiate and get approved?
There is no great secret to being approved for a loan - lenders want to lend (it’s how they make their money, after all) and most will try and find a way to make that happen.
Of course, having a strong credit rating, a regular income and a proven ability to repay debts will all work in your favour.
What's less known, though, is that rates, like most things, are actually negotiable. Don't be afraid to shop around, and to ask for a rate that's better than advertised - you might be amazed at what’s possible.