This page has specific details about Australian products, however the products on the whole should be similar to products available in most countries. It could just be the product is given a different name. If you a from another country, have a read and then again hit the sites that show different loan products.
There are many options to finance your car. These include:
Chattel Mortgage (Leasing)
This is the most common way to finance cars. Personal Loans used to be pretty similar with no establishment or on going fees and similar interest rates. This has changed in the last few years. Now some have an establishment fee and an ongoing fee while others have one or the other or neither.
Establishment fees are generally between $100 to $200 while interest rates are between 11% - 13%.
Most will offer options with repayments (monthly, fortnightly & weekly) and almost certainly will insist on having the instalments come out of your own transaction account. In most cases you won't have to open an account with the lender. They will generally be comfortable taking the instalments out of the account with your current financial institution.
Personal Loans generally don't require security, although sometimes a guarantee is required from the borrowers parents. Even though the loan is unsecured, the documentation allows the lender to initiate legal action. If necessarily they will go through the legal process to recover their money or enter a judgement. Having a judgement shows up on your credit check which would make it very difficult to borrow again in the next 7 years!
The best part with these loans is you can arrange the finance prior to buying the car. Check with the lender when applying, however you should be allowed to have the loan funded prior to buying the car. The lender may insist on you later providing proof that you have actually purchased a car.
This is a newer type of loan. Various Banks have advertised car loans, boat loans and caravan loans in the past however they have been personal loans with glossy advertising.
These days with finance being able to be obtained via different methods, a cheaper type of personal loan is becoming more and more popular. Car loans usually have the car as security. This may make the purchase more complicated however you should expect a lower interest rate of about 4 %.
The process for these loans is similar to a personal loan. Apply for the loan. Once approved you have to negotiate the purchase of the car. Have the dealer fax details to the lender or better still phone your lender and have them request the required information from the dealer. This whole process may take a few days however often the car isn't ready for a few days so the timing usually works out.
You should not be overly concerned about the car being used as security. After all it is saving you money!
Let's compare the difference to demonstrate the saving. We will assume the fee structure is the same so that we are comparing apples with apples.
$20,000 5 years 12 % $445 per month
$20,000 5 years 8 % $ 405 per month
Over the life of the loans you will pay $2,400 extra at the higher rate.
Remember to find out all the fees to ensure you know the real deal. This can include early repayment fees.
Chattel Mortgage (Leasing)
Leasing is the historic name for finance of motor vehicles that are used for business purposes. As with car loans the vehicle is the security. Applicants used to apply for either a lease or hire purchase with most opting for hire purchase. These days because of GST the finance is called chattel mortgage with some applicants applying for asset purchase (hire purchase).
The interest rates for chattel mortgage & asset purchase are about the same ie 8%.
To work out which product to apply for ask your Accountant.
Only self employed or people who can demonstrate they use their car for their work are allowed this type of finance.
In years gone by home loans were only allowed for housing related purposes. Things have changed with home loans now available for most personal related purposes. The attraction is obvious when you compare the 2 main financing choices. A home Loan at 7% or a personal loan at 13% ? The concern is the loan term. Financing a car over 20 years is not such a smart move. The key to make this option work is to have the loan instalments on the increased or new loan amount based on a realistic loan term for the asset being purchased. For cars the ideal period is a maximum of 5 years.
Be very cautious when financing cars if considering using a line of credit type product. This can make your car very expensive in the long run. Please refer to our home section for more information on this product.
The thought of using a credit card for financing a car sounds ludicrous! In most cases this is correct given the high interest rates on credit cards. If you almost have all the cash to purchase a car, the credit card may be a reasonable alternative. You may already have the limit to cover that $3,000 therefore not requiring a loan application.
A good rule of thumb here would be if you can comfortably pay off that amount required in 6 months or less, then consider using a credit card. The ability to pay off larger amounts quickly may negate the higher interest rate as compared to a personal loan.