When you’re in the market for a new car (especially your first set of wheels), it’s always worth doing your research to understand what kind of options you have when it comes to finance. Buying a car is by no means a simple or small purchase – every year, thousands of Australians opt for a car loan as an effective way to fund their new purchase.
Car finance comes with a variety of benefits, perhaps the most significant of all being the ability to make a big purchase without needing to rely on the savings in your bank account. But there are different finance options for cars – let’s jump into the different types of car loans available, so that you can make an informed decision on the best loan for your situation and needs.
What are the available car loan types?
Everyone’s financial situation is unique, which is why there are a variety of car loan types available for borrowers. Some types of car finance will be more suitable for those who already have existing finances to rely on, while others may be able to provide higher borrowing amounts. Understanding the differences between each type of car loan will help you towards making the best decision for your car purchase.
Secured car loan
A secured car loan operates on the basis of the usage of the purchased vehicle itself as collateral. This type of car loan typically offers a relatively lower interest rate for the borrower as the value of the loan is tied to the car, thereby reducing the risk for the lender.
As with all car loan options, borrowers are required to make repayments based on an agreed-upon amount throughout the loan period. If the repayments are not made, the lender will be able to repossess the car if you do not maintain the loan repayments for the agreed term.
In addition to the above, the limit on the borrowed amount for a secured car loan is also based on the car’s value, and may not cover additional costs of the purchase such as insurance, registration fees, or transportation costs.
Personal loan
Unlike a secured loan, a personal loan is not tied to the car to be purchased. That said, this increases the risk for the lender, which in turn, usually results in a higher interest rate for the borrowed amount. Depending on your credit score, you may still get an excellent interest rate on a personal loan.
Furthermore, the money borrowed with a personal loan can be used at the borrower’s own discretion, not just to finance the car, providing additional financial security.
Personal loans are ideal for those who want the flexibility of choosing what to do with the borrowed amount, particularly if they have not yet decided on a specific car model to purchase.
Private sale car loans
Private sale car loans offer borrowers the ability to get a loan for car purchases from private sellers. With private sale car loans, lenders will tailor the terms and borrowing amount based on the amount required and the car’s value.
This is generally the best option when needing to finance a car purchase from a private seller. Private sale car loans can be both secured or unsecured loans.
Chattel mortgage
Chattel mortgages are catered towards businesses or business owners that require a vehicle purchase for the sake of carrying out business activities. With this type of car loan, the business owns the vehicle and the lender uses the vehicle as security. This offers the lender security and peace of mind you’ll pay back the loan.
The main benefit offered by a chattel mortgage is the flexibility of choice for the business to take on the ownership of the vehicle at the end of the loan term by paying off the remaining amount of the value of the vehicle (after repayments).
Novated lease
A novated lease, also known as salary sacrificing, is a type of car loan that involves a lender, employer, and employee. In this arrangement, an employer will make deductions from an employee’s salary payments in order to finance their car purchase.
The benefit is that by reducing the salary amount, employees can also potentially fall into a lower tax bracket and pay less tax as a result. A novated lease could save you thousands of dollars over the life of the loan.
So, now that you’re more aware of the different types of car loans available, the next step towards your car purchase is to find the right lender and loan to meet your car finance needs. At Credit One, we can help you find the best car finance options with favourable rates and fast loan approval. Speak to our brokerage agents today to gain access to a network of over 50 approved lenders and get behind the wheel, sooner!
