A New Car For Christmas?

Christmas seems to be absolute bonanza time for advertisers of all sorts, including car advertisers. They’re out there trying to tell you that a new car would make a great Christmas present for yourself or your family. Some of you might be considering it, which is why you’re out looking for a personal loan or a car loan to finance it.

If this is you, it might be time to stop and think before signing anything. Christmas is a bit of a high-pressure time when the advertisers are out to get you to spend, spend, spend. More than one person has committed to something over the Christmas present and then ended up regretting it in January when the pressure of regular repayments starts to bite.

You should never buy a car under pressure when there’s a deadline  and Christmas day is a deadline of a sort. It’s bad enough if you have to find a new vehicle in a hurry at any time, but in other situations, there’s always the option of using public transport or catching a lift with a mate (with the promise of returning the favour later) while you take the time to find the best deal for a car loan. But with a deadline  that’s when you can end up committing yourself to a finance package that might not be the best for your income and existing commitments.

Before you sign up for a car loan, you should always ask the questions and do the research, not only into the car you would like to buy but also into the financial package in question. Ask about interest rates, the term of the loan, repayment frequency and whether or not you can make extra repayments. Feel free to ask us any questions  even if you think they’re silly questions. It’s what we’re here for.

Unless you are loaded (in which case, you wouldn’t be visiting a financing website), a new car makes a bad Christmas present, even for an enthusiast. New cars depreciate shockingly quickly and second-hand ones can provides some surprises that you don’t really want. It’s better to pick out your own car that suits your own needs (and budget) than to try to choose something that suits someone else.

If you do have a car enthusiast in the family and want to buy him/her a car-related Christmas present, look for something smaller than a car that doesn’t require the same level of financial commitment  and which probably won’t require a loan. Here’s a handful of suggestions:

  • A years subscription to an automotive magazine (do some sneaky asking around to get the right title).
  • Any car care accessories: chamois leathers, car wax  or some home-made I will wash your car vouchers. Or make your own car care products.
  • Driving gloves. Old fashioned but due for a comeback.
  • Other car accessories: seat covers, sunshades for windscreens, fluffy dice for the windscreen.
  • Model toy cars of the type that you know the car enthusiast in your life dreams of having.
  • Items decorated with the logo of their favourite marque: key rings, drinking glasses, T-shirts, etc.

And for a light-hearted look at those Christmas-themed car ads plus a few parodies, have a look at this link from Jalopnik: http://jalopnik.com/5970105/great-six-years-of-car-payments–your-lexus-christmas-ad-parody-roundup-is-here/.

Why You Might Need A Bike Loan

Hands up all those who think that this article is going to be about motorbikes and being approved for a loan so you can buy yourself a new motorcycle  or so you can get the school leaver in your family a form of transport that’s relatively cheap to run so he or she can get to that first job next year. Well, we can certainly help you with this process and some of our posts earlier this year have covered issued to do with motorbikes and how to choose them.

But that’s not the only sort of bike you might need a loan for. These days, if you want a really good one, you might even need to take out a loan to buy a pushbike. Yes, a pushbike. While you can still find bikes of the sort that most readers knew when they were kids (and at the same sort of prices that won’t break the bank or require a loan), a really good bike can cost more than a second-hand car.

Bikes have come a long, long way in the last twenty-odd years, and they’ve been developing much faster than cars have. Twenty years ago, a really good bike had 12 gears and a car had five. Now, a really good new car has eight gears but a top-range bike can have 24 or more. Bikes have got lighter, too, with the best ones being made of pure carbon fibre. Add in suspension and you have something lighter, faster and capable of tackling rougher terrain than the old BMXes we used to muck about with. No wonder these bikes cost well into the thousands  and why you may need to take out a loan to buy one for yourself this Christmas.

Why are bikes getting so good? These top-notch bikes aren’t just the domain of professional mountain bikers, stunt cyclists and Olympic racers. These bikes are being used for commuting; hence the demand for better, more efficient machines. There’s also a bit of a prestige thing going on  if you do decide to ditch the car and cycle to work for whatever reason, and you’re the manager, it looks a bit better if you have a very, very good bike parked in the workplace parking space rather than the rusty old clunker you’ve had since high school. Lighter bikes are also more compatible with other forms of public transport, as it’s easier to get a carbon fibre bike onto a bus or train than a big steel or even aluminium one.

The one big advantage that a bike has over a car is that it will eventually pay itself off in savings  you don’t need petrol to fuel a bike (and you’ll probably save on gym memberships). This means that if you do take out a loan to buy a good bike, you will be able to put the money you would have spent on petrol into the weekly repayments. This brings out another advantage of taking out a loan to buy a good bike rather than saving up and getting one in six months time: having to make those weekly or fortnightly repayments helps you stay motivated to keep using the bike for your commute so you don’t have to pay for petrol as well as the weekly repayments.

When you buy your bike, don’t forget the other bits you’re going to need. You will need a good helmet and possibly some high-viz gear for daytime.You’ll definitely need lights for night-time and you will also need a very heavy-duty security lock. There are tons of other accessories to consider to make your bike commute better, from gloves to rainshield for backpacks, so you might like to allow for purchasing these if you are considering a loan for a bike.

OK, we probably aren’t going to see people doing a salary package involving a top-of-the-line pushbike in the near future. But if you’re considering your transport options for the year ahead and a cycle commute (with or without public transport for part of it) is feasible for you, then why not think about getting one of the great new bikes that are out there these days and taking out a loan for one of these instead of buying a second-hand car? But car, bike or motorbike (or boat, or ride-on lawn mower, etc.), remember to talk to us about the sort of loan you need so you can find the best deal possible.

The Fine Print

Everywhere you turn, you get offers either for cars or for loans or for both. They’re in the newspaper, in magazines, on the radio, on TV and on billboards and even on the community noticeboards at the local supermarket. If you’re on the hunt for a new car and need a bit of finance, then it can all be a bit overwhelming. Every single ad sounds like such a good deal. However, every single ad has fine print hiding underneath the large banner that sounds so attractive. What do you choose?

Let’s have a little look at random at some of these car loan deals and unpack them a bit, both the big hits-your-eye bit and the small print underneath.These have been taken more or less at random from an old newspaper but with the names of the dealers and companies removed to protect the innocent and the guilty!

1 0% 50 50. The no interest bit looks great to many people, but the fine print explains what the 50 50 bit means. It means you have to pay half of the new car price (and the ad featured brand new prestige European models) straight away and the other half 12 months later.Great if you have been good about saving up for that first 50% and if you are in a position to scrape the other half together in just 365 days.

2 Just $XXX per week. Looks manageable but when you look down the bottom of the page, you see that you need a 20% deposit and the term of the loan is for 48 months. And the amount includes loan protection insurance/cover. If you can get that 20% deposit, well and good. At least the ad is up-front about what you’re going to be forking over each week.This is a very common type of ad for car finance and the actual details in the small print vary from company to company, so read it carefully.

3 Purchase today with 3% interest rate. A lovely low interest rate, sure, but the fine print says that you need a 30% deposit and the longest you can have the loan for is 36 months. You’ve also got a loan establishment fee.And you don’t know what your monthly repayment amount will be.

4  8.9% finance on any new or used XXXXX.This ad didn’t have any small print apart from the usual XXXX lending criteria apply. There’s no mention of deposit amounts or loan terms, so it would pay to ask a few questions here.

5  Free insurance for 12 months with finance. The small print didn’t say much apart from the fact that the offer was only for private buyers and small business operators and you couldn’t get this if you were buying a company fleet. And you had to be over 21. However, this was just a small part of the full-page ad, and individual vehicles in the ad had the just $XXX a week banner (see above).

And if you find it all too confusing, just ask us to do the hard work for you sorting through all the myriads of loan companies!

Finance Specials

There could well be a few of you out there that don’t realise that Renault, that great French brand that has never quite made it here, are the owners of a very large slice of Nissan Motor Company.

So we see at the moment both Nissan and Renault marketing some very aggressive finance rates.

With Renault, you can get a 2.9% Interest Rate on the Megane, the new Latitude Sedan and the Fluence Sedan and a 3.9% Interest Rate on the commercial range, namely the Kangoo, Trafic and Master vans.

With Nissan, they are offering a 1.9% Interest Rate on the new Micra.

On top of these they are offering free servicing and a 5 year warranty on some models which all seems quite compelling.

However, as with all of these special offers there is small print, which you must read. Both are restricted to 36 month terms and it is interesting that the comparison rate referred to in the advertising relates to a 60 month contract for $30,000, when the Micra costs half of this amount! So, go figure!

As with all of these deals, whilst on the face of it they may seem attractive, it is always best to try and compare apples with apples. You may find that the rate is only available for the car if you pay the full ticket price for the car. Whereas you may be able to negotiate a discount and then finance the vehicle at normal rates and end up better off.

There is no doubt that for some people, these are well worth considering but we would recommend that you do your homework first and don’t get drawn in by some slick salesperson’s spiel.

Changes to FBT rules

Back in May, there were some changes to the way that FBT is calculated on Company vehicles. This has lead to a much simpler way of calculating the tax, but in the interim I have been asked many times how this impacts existing contracts, so below I will try and explain in plain English.

One thing is clear, there is no longer a benefit for those travelling large numbers of kilometres per annum because there is now one flat rate of 20% across the board.

HOW THE OLD STATUTORY FORMULA METHOD WORKS

Under the old statutory formula method, the taxable value of car fringe benefits is based on the cost of the car multiplied by the relevant statutory percentage. The percentage depends on the number of kilometres the car has travelled, taking into consideration the number of days in the year that you provided car fringe benefits.

Where the last commitment in relation to a car has been entered into before 7.30pm AEST on 10 May 2011 the old statutory rates will continue to apply, as outlined in table 1.

However, if a pre-existing commitment is altered, it may be considered a new commitment that is subject to the new arrangements.

Table 1

Total kilometres travelled during the FBT year (1 April 31 March) Old statutory rate
Less than 15,000 0.26
15,000 to 24,999 0.20
25,000 to 40,000 0.11
Over 40,000 0.07

HOW THE NEW STATUTORY FORMULA METHOD WORKS

The new flat statutory rate of 20% applies regardless of the distance travelled.

The new flat rate applies to all car fringe benefits after 7.30pm AEST on 10 May 2011, except where there is a pre-existing commitment in place to provide a car.

All pre-existing commitments will remain under the old statutory rates unless there is a change that would amount to a new commitment.

Statutory rate

Statutory rate
From 10 May 2011 From 1 April 2012 From 1 April 2013 From 1 April 2014
Less than 15,000 0.20 0.20 0.20 0.20
5,000 to 25,000 0.20 0.20 0.20 0.20
25,000 to 40,000 0.14 0.17 0.20 0.20
Over 40,000 0.10 0.13 0.17 0.20

So there you have it, plain and simple up until April 2014, but if you have any other questions relating to this, make sure you talk to the people at FinCar.

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Employee Contribution Method

Interest Rates

Tuesday, 10 May 2011 08:06

The Employee Contribution Method (ECM) is an evolution of the Novated Lease product that was initially introduced as a method of payment for Executives and high income earners to save money (taxes generally) regardless of their job description.

The original Novated Lease was established using the Statutory Fraction Method, more commonly known as the FBT method for those people who fell into the highest marginal tax bracket.

However, since July 30 2008, the top marginal tax rate rose to $180,000 from $150,000 which reduced the glamour of this product to many people.

So as not to disadvantage these people from this fundamental shift in tax rates the (ECM) was implemented to maximise the benefit from vehicle packaging for PAYE tax payers under $180,000 (after packaging).

The ECM is a more tax effective arrangement for those under the top tax margin simply because the FBT method uses a formula that is based on the capital value of the vehicle, the statutory fraction and highest marginal rate; E.g. Capital Value X Statutory Fraction X 45% X 2.0647 (easy hey!!not)

Basically, if you are under the top marginal rate of tax and you want to package your car you can contribute to the value of the vehicle pre-tax and the running cost post tax; saving you the difference on the margin.

For every dollar the employee contributes to the running costs of the vehicle they reduce their FBT liability of the vehicle by the same amount. So you are substituting the FBT costs for standard tax.

As a rule of thumb, you will save (on spending) approximately 10% of the value of the car each year. It may not seem too much, but if you purchase a $30,000 you will be about $3,000 per year better off than with the Standard Novation agreement. That is definitely better in your pocket than the ATOs!

Ask the people at FinCar for more information on ECM when you call.