It’s often hard enough navigating the finance landscape when it comes to some of the terms and names thrown about across the industry, however, the complexity of things only escalates when you start to look at the various forms of financing available. That’s right, car loans come in a number of different types, and perhaps most confusingly, they are all unique in their own ways.
So what’s what? First of all, not all loans are equal. It pays to know what you’re getting into before you sign any papers. With this in mind, here is a general overview of the most-common types of financing, so you can borrow with confidence.
Chattel Mortgages:
A chattel mortgage works pretty much like a house mortgage, however, it is used for personal assets other than property.
Naturally, you borrow money from a lender and pay it back with interest, although the lender has some security while the customer gets to use the asset. Only once you have paid off the mortgage do you acquire full ownership of the asset.
A chattel mortgage is typically for businesses with commercial operations, particularly since GST doesn’t apply to monthly repayments, and not private individuals.
Commercial Hire Purchase:
This is another option for businesses and works like a personal hire purchase agreement. You get to use the car or bike or equipment under financing immediately before paying it off in instalments. These repayments include the cost of hiring the asset until it’s all paid off and you own the car outright.
Personal Loan:
The simplest form of loan out available, and suited to individuals. You borrow money that you use to purchase a vehicle or other asset and you pay the money back with interest. You own the car or asset straight away but the vehicle or asset can be repossessed by the financier if you default on payments since it is typically put up as collateral against the loan.
Ordinary Lease:
Here, the business pays to use the car or asset for a certain period, which is fixed. An ordinary lease isn’t like renting or hiring, although it may look like it at first. The car or asset is owned by the financier, while the amount paid by the company for the lease is tax-deductible.
Novated Lease:
This is similar to an ordinary business lease, on behalf of an employee of a company. The difference is that an employee of the company may use the car as they please, including for personal use. At the same time, the company pays the lease amount to the financier for as long as the employee is with the company.
The lease payment amount doesn’t change the employee’s taxable income, so it’s a good thing for employees who want to stay in a lower tax bracket. It’s also a good way for employers to retain their best workers. Novated leases are fairly unique to Australia, and they’re often misunderstood by many employees and businesses, despite offering potentially attractive benefits to both.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.