Car Loans Australia
What are Car Loans
A Car Loan is a finance product where a financier lends you money so that you can purchase a vehicle. The car can be either a new or used vehicle and generally the finance company will use the vehicle as security for the loan.
Types of Car Loans
There are 2 types of car loans available for individuals. They are :
- An unsecured car loan, which is a form of Personal Loan where the financier lends you money but you don't have to provide the car or anything else as security.
- A standard car loan where the financier lends you money in order to purchase the vehicle and they then take security over the vehicle to protect the loan.
Either type of car loan can be taken out for a new or used car, but be aware that the secured car loan will have a lower interest rate because it represents a much lower risk to the lender.
There are also 3 types of car loans that businesses can use in order to purchase a new or used commercial vechicle. They are :
- Chattel Mortgage - This is where a business purchases a vehicle with funds from the financier, who then takes a mortgage over the vehicle. This is similar to a standard car loan, except that the business can now claim depreciation, running costs and interest paid as a tax deduction.
- A Commercial Hire Purchase - A CHP is where a business "hires" the car from the financier for a fixed monthly repayment over a term and then has the option to purchase the vehicle at the end of the term.
- A Finance Lease - Also known as an Operating Lease this is where a business has the ownership benefits and use of a commercial vehicle, whilst the financier retains actual ownership of the vehicle.
Who are Car Loans Suitable For
Car Loans are really suitable for people who have a reasonable income but do not have a lot of money saved up in the bank. A lot of the time this is a person who has recently joined the workforce for the first time or has just started a new and better paying job. In these circumstances the lender will need to confirm that your employment situation is steady and ongoing.
A car loan is generally for people who wish to purchase a relatively new car and are not going to be using it for business purposes (otherwise you are better off a Finance Lease of Commercial Hire Purchase). By utilizing car loans you will be able to buy a car that suits your particular needs now, rather than having to wait a few years in order to save up enough money to buy it outright.
New and Used Car Loan Tips
- It is always a good idea to save up a significant portion of the purchase price of the car as a deposit and not borrow the full amount of the car. By doing this you will save lots of money on interest repayments over the course of the loan. Also you will reduce the chances of having your car being worth less than you owe especially right after you buy it, as it is a well known fact that a new car goes down in value by about 10% as soon as your drive it away from the dealership.
- When looking for a car don't go for something that is beyond your capacity to repay. Instead it is best to work backwards by calculating how much you can afford to borrow and then find makes and models of cars that are in your price range.
If you are unsure about the meaning of some of the terms or abbreviations used by lenders then you can check out the car loan terminology page, which has a detailed explaination about some of the more confusing aspects of getting a car loan.