Purchasing a new car is no simple decision. Besides deciding what vehicle make and model you want, you also have to decide how you will buy the car. Unless you’re fortunate enough to pay with cash, chances are, you’ll be looking into financing options.
Deciding what car finance option is right for your situation is important, when you’re shopping around for a car to buy, you should be evaluating your finance options at the same time.
If you’re in the market for a new car, knowing what your finance options are before getting to the dealer will allow you to get the best finance deal possible. Looking for a new set of wheels? These are the most common finance products out there.
- Chattel Mortgage
Unlike a car loan, a Chattel Mortgage is a commercial finance option used for commercial car purchases. As a Chattel Mortgage is specifically designed to be a commercial finance option, the car must be used for business purposes at least 50% of the time.
The client purchases the vehicle through an advance loan made by the financier. A Chattel Mortgage can be broken down into two parts. The “chattel” is the car in question while a “mortgage” is placed on the car as security by the financier of the contract.
- Novated Lease
A novated lease is a finance option made by an employee, their employer, and a finance company.
This three-way agreement works for both employees and employers. Employees are able to get the car of their dreams in a cost- and tax-effective way. Lease terms for a novated lease are flexible and vehicle costs are paid from pre-tax income, saving money in the long run.
Employers benefit by not having to deal with the administrative requirements of a company fleet. The novated lease is also a great incentive to attract and retain talent, and as the employee is responsible for the lease, there is no liability imposed on the business.
- Personal loan
One of the easiest ways an individual can finance their new car purchase is with a personal loan. Unlike a car loan, a personal loan is not restricted to motor vehicles, meaning they can be used for a wide variety of purposes.
When deciding to finance a car purchase with a personal loan, some important points must be considered.
Do research beforehand to find the right lender for your personal loan. Know the finance terms such as fixed or variable interest rates before your visit. Shop around before signing a loan agreement to get the best interest rates for your loan.
- Car loan
A common personal finance product that individuals use to finance a car is a car loan.
Under this type of personal finance agreement, an individual takes ownership of the vehicle through funds advanced by a finance company. The car is used as collateral to secure the loan in the possibility of you defaulting on the loan agreement.
As car loans are secured against the possibility of defaulting, they often come with lower, more competitive interest rates, unlike a personal loan which is unsecured.
- Commercial Hire Purchase
Similar to a Chattel Mortgage, a Commercial Hire Purchase is a commercial finance option for individuals who want a vehicle for business purposes. But unlike a Chattel Mortgage, the customer does not have ownership of the vehicle.
Rather, an agreement is made between the customer and a finance company in which the financier purchases the vehicle on behalf of the customer. The customer then hires the vehicle from the financier for an agreed-upon period, making fixed monthly payments.
At the end of the contract term, once interest charges and the vehicle cost are paid in full, the customer can take ownership of the vehicle.
How to decide which finance option is right for you
Regardless of your choice, do your homework before making a decision. Just as a car buyer has different needs and specifications, he also has various finance options. But not every car buyer will qualify for all options above.
Understanding the advantages and disadvantages of each finance option listed will enable you to find the right option that best suits your needs. To find the right choice, you must also consider your status as the consumer and how the vehicle will be used.
If the vehicle is used mainly for commercial reasons, then consider financing your car with a Chattel Mortgage or a commercial hire purchase. If it’s used mainly for personal purposes, then a personal or car loan may be better suited. A good option that balances both may be a novated lease.
Knowing all this information before arriving at the dealership ensures you drive away with the right car and the right finance option.
Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.