Different Types of Car Financing Options in Australia

| December 12, 2013 | 0 Comments

Car Finance Australia

Every person dreams of getting a new car but unfortunately, most people do not have enough money saved up purchase their dream car outright. Most people lack instant cash to purchase cars thus rely on car loans.

Almost all mortgage and lending institutions in Australia offer a variety of car loans to people who want to purchase cars but lack instant cash.

The major types of car loans in Australia, according to the car finance company Positive Lending Solutions are listed below:

1. Commercial Hire Purchase (CHP)

CHP is a commercial finance product where a financier purchases a car and hires it to a consumer for a fixed monthly repayment over a period of time.

When the consumer finishes servicing the loan in the set period of time, the financier transfers the car ownership to the consumer.

The major advantage of a commercial hire purchase is that interest rates are low. In addition, this loan is easy to modify to meet the consumer’s budget, the capital outlay is low, the interest rates and monthly repayments are fixed, and it is flexible since it allows a consumer to pay a deposit of the total cost or even a lump sum balloon payment.

2. Finance/Car Lease

A car/finance lease enables a consumer to use a car purchased by the financier. The consumer is able to use the car immediately with little or no capital expenditure.

A car lease is available to both individuals and businesses which intend to use the car for commercial purposes. The consumer pays fixed monthly payments and also maintains the car. At the end of the car lease, the consumer can buy the car, continue the lease, re-finance the residual value or trade it in.

This car finance product is beneficial because it has flexible contract terms, interest rates and monthly lease rentals are fixed, a consumer has prior knowledge of the costs to be incurred and the car is available for immediate use.

3. Novated Lease 

This car loan product is a three-way agreement between the financier, employer and employee/consumer. The employer pays the operating expenses and monthly lease rentals by deducting the pre-tax income of the employee.

The operating costs of the car include insurance, maintenance and servicing expenses. If employment is terminated, the employee/consumer has the sole responsibility for the car. This car loan is beneficial because an employee has the opportunity to choose a preferred car and the loan reduces the employee’s income tax.

4. Chattel Mortgage

Under this car finance product, the financier advances money to a consumer to buy a vehicle. The consumer takes the ownership of the car upon purchase while the financier holds a mortgage as a security for the car loan. Upon full servicing of the loan, the financier removes the security interest and the customer gets total ownership of the car.

The customer benefits by taking ownership of the car at the time of purchase and paying low interest rates since the loan is secured against the car. In addition, the capital outlay is minimal, contract terms are flexible and any depreciation or interest charged is tax-deductible.

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Category: Car Loan

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