Car Loans

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Buying a new car, whether it is your first or upgrading the family vehicle, is an exciting time.

Navigating through the volumes of information with calculators, loan options, securities and interest rates, can be daunting without the right advice. Choosing the a structure to suit your current and future needs means you can enjoy that new car experience without the stress. 

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Types of Car Loans

When it comes to financing the purchase of a new (or used) car, there are a number of options to suit various situations. Depending on the planned use of the vehicle, your finance solution can be tailored to suit your needs.

Novated Lease

This car finance option involves a salary sacrificing arrangement between you and your employer. They commit to taking on the repayments of your car finance, deducting from your pre-tax income, which has potential tax benefits for you. Essentially, the lending institution retains ownership of the car, which you have the option to buy at the end of the novated term, generally 3 to 5 years.

The benefits of a novated lease can be,

  • Accessible on most salary levels,
  • Can combine finance and running costs into one easy payment,
  • Maximise tax savings,
  • Option to lease a new or used car.

Finance Lease

With a finance lease, your bank will purchase the vehicle on your behalf, and then leases it back to you for a fixed monthly payment. At the conclusion of the lease the you can pay a residual value (final instalment) on the lease, trade it in or re-finance the residual and continue the lease. The benefits of a finance lease include,

  • Flexible contract terms 1-5 years,
  • Fixed interest rate and monthly repayments,
  • Ability to make advance payments to for tax deductions or cash flow purposes.

Hire Purchase

With a hire purchase arrangement, a lending institution purchases the car on your behalf, and then hires it back to you over a set period. Ownership of the vehicle remains with the financier until the end of the hire term, when you can then take over ownership once any residual and insurance costs have been settled. The benefits of a hire purchase solution are,

  • Flexible hire contract terms,
  • Fixed interest rate,
  • All costs are known in advance,
  • Tax benefits (if some business use),
  • No GST on repayments.

Chattel Mortgage

With a chattel mortgage, you will have the funds advanced to you by your lender, and will take ownership straight away. Your lender will then register a mortgage over the vehicle with the Personal Property Securities Register, which is then released at the end of the contract. This type of lending solution may suit small companies and sole traders who utilise a cash accounting method as GST can be claimed upfront. The benefits of a chattel mortgage include,

  • Flexible contract terms 1-5 years,
  • Fixed monthly repayments, with end balloon option,

Lower interest rates with car as security.

Car Loan

Essentially, with a car loan, your car is used as security for the loan, with a term of between 1-10 years. You will own the car from the outset, with your bank having an interest which is released at the end of the contract. The benefits of a car loan are,

  • Flexible contract terms,
  • Ability to apply a balloon payment to end of contract to lower repayments,
  • Fixed or variable interest rate,
  • Lower interest rates with the car as security.

Personal Loans

The simple personal loan to purchase a vehicle may be the right solution for you, especially if there is minimal business use for the car. These loans do not hold the vehicle as security, and are sometimes known as unsecured loans. Personal loans generally allow the option to may more frequently and to make additional payments, which can set you on the path to paying your loan off sooner. The benefits of using a person loan to purchase a car are,

  • Flexible contract terms, 1-10 years,
  • Fixed or variable rates,
  • Loan is not secured by the car,
  • Available to purchase older/low value vehicles (which can be outside the lending guidelines for other loans).

Novated Lease

This car finance option involves a salary sacrificing arrangement between you and your employer. They commit to taking on the repayments of your car finance, deducting from your pre-tax income, which has potential tax benefits for you. Essentially, the lending institution retains ownership of the car, which you have the option to buy at the end of the novated term, generally 3 to 5 years.

The benefits of a novated lease can be,

  • Accessible on most salary levels,
  • Can combine finance and running costs into one easy payment,
  • Maximise tax savings,
  • Option to lease a new or used car.

Finance Lease

With a finance lease, your bank will purchase the vehicle on your behalf, and then leases it back to you for a fixed monthly payment. At the conclusion of the lease the you can pay a residual value (final instalment) on the lease, trade it in or re-finance the residual and continue the lease. The benefits of a finance lease include,

  • Flexible contract terms 1-5 years,
  • Fixed interest rate and monthly repayments,
  • Ability to make advance payments to for tax deductions or cash flow purposes.

Hire Purchase

With a hire purchase arrangement, a lending institution purchases the car on your behalf, and then hires it back to you over a set period. Ownership of the vehicle remains with the financier until the end of the hire term, when you can then take over ownership once any residual and insurance costs have been settled. The benefits of a hire purchase solution are,

  • Flexible hire contract terms,
  • Fixed interest rate,
  • All costs are known in advance,
  • Tax benefits (if some business use),
  • No GST on repayments.

Chattel Mortgage

With a chattel mortgage, you will have the funds advanced to you by your lender, and will take ownership straight away. Your lender will then register a mortgage over the vehicle with the Personal Property Securities Register, which is then released at the end of the contract. This type of lending solution may suit small companies and sole traders who utilise a cash accounting method as GST can be claimed upfront. The benefits of a chattel mortgage include,

  • Flexible contract terms 1-5 years,
  • Fixed monthly repayments, with end balloon option,

Lower interest rates with car as security.

Car Loan

Essentially, with a car loan, your car is used as security for the loan, with a term of between 1-10 years. You will own the car from the outset, with your bank having an interest which is released at the end of the contract. The benefits of a car loan are,

  • Flexible contract terms,
  • Ability to apply a balloon payment to end of contract to lower repayments,
  • Fixed or variable interest rate,
  • Lower interest rates with the car as security.

Personal Loans

The simple personal loan to purchase a vehicle may be the right solution for you, especially if there is minimal business use for the car. These loans do not hold the vehicle as security, and are sometimes known as unsecured loans. Personal loans generally allow the option to may more frequently and to make additional payments, which can set you on the path to paying your loan off sooner. The benefits of using a person loan to purchase a car are,

  • Flexible contract terms, 1-10 years,
  • Fixed or variable rates,
  • Loan is not secured by the car,
  • Available to purchase older/low value vehicles (which can be outside the lending guidelines for other loans).

At Loan Studio, our lending experts will guide you through the car finance process and work with you to find a solution to suit your individual needs. Need more information? Check out our Car Loans FAQs (below) or download our handy finance guides.

Tips for Buying a Car

Car Loan FAQs

A balloon payment (also known as residual payment) is the remaining lump sum owed to the financier once the loan period has been finished. This structure allows the borrower to repay only part of their principal loan and reduce the periodic payments.

Using your car (or another asset) as security for a loan can reduce the interest rate payable. However, if you default or fall behind on a secured loan, your financier has the option to sell your asset in lieu of the repayments.  

Your car loan contract term is the timeframe you agree to repay your borrowed money within. You will sign a legal contract detailing the amount borrowed and the agreed contract period. 

When applying for a car loan you should collect the following documents,

  • Proof of income
  • Credit and banking history
  • Proof of residence
  • Vehicle information
  • Insurance details.

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Home Loan variable interest rate of 5.89% per annum is as at 3 October 2023 and is subject to borrower meeting the lender's criteria, terms and conditions and loan to value ratio ('LVR') requirements. This rate of 5.89% per annum is based on a variable rate home loan of greater than $50,000 and not exceeding a LVR of 80%. The comparison rate of 5.91% per annum is as at 3 October 2023 and is based on a secured loan of $150,000 over a term of 25 years. This comparison rate is true only for the example or examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Lending criteria, fees and conditions apply. Rates, fees and conditions are indicative and subject to change without notice. Loan Studio Pty Ltd (ABN 97 146 606 135) is an authorised credit representative (390870) of Port Group Pty Ltd (Australian Credit Licence Number 389460.