Car Finance Options

 

Autokosten mit Taschenrechner und RotstiftAre you thinking about purchasing a new car?

Do you need to upgrade your current motor vehicle?

Did you realise that vehicle finance is easy to obtain on a used motor vehicle and may attract the same interest rates as a new vehicle?

Were you aware that you can now finance a vehicle in the same manner as a business and include a balloon payment to help reduce your monthly repayments?

Did you know Capital Funding Group has been assisting our clients with car finance for over 25 years?

If you have been considering purchasing a motor vehicle now is the time to act. With interest rates at all time lows, there has perhaps never been a better opportunity to upgrade your current motor vehicle.

When purchasing a Motor Vehicle (new or used) it is not just the type of vehicle or colour you need to consider, although that’s important – it’s also very important to ensure you choose the correct finance option for your individual needs.  In the past, your finance options as an individual unable to claim a tax deduction were limited.  You either had the option of financing your purchase with one of the following 3 methods:

–         Secured Personal loan (cheapest option of the Personal loans but usually limited to cars that are less than 4 yrs of age)

–         Unsecured Personal loan (more expensive but no limitations on what type of vehicle you can purchase)

–         Draw against your mortgage (cheapest option with no limitations)

In recent years we’ve seen the development of new products and new lenders in the consumer vehicle finance segment.  One of the products that has proven extremely popular is the Personal Lease which offers the ability to structure your loan with a balloon payment, in the exact same manner as businesses have been able to do for decades.

So, What is a balloon payment?  This is a payment that you make at the end of the contract and is usually a % of the value of the vehicle.  For instance, if you were to finance a $30,000.00 vehicle over 4 years with 30% balloon, this would mean at the end of the 4 years you would be required to pay $12,000.00 at the end of the term.

Why would we have a balloon?  There are a few reasons why borrowers structure their facilities with a balloon payment and these are:

–         To keep their monthly payments lower.  This enables the borrower to improve their cash flow position and utilise the extra funds in repaying other debt, such as high interest rate debt (credit cards) or just to put the extra money towards paying down their residential mortgage.

–         To enable them to afford a more suitable vehicle that was previously out of their budget.

What happens at the end of the term? At the end of the term the borrower has the following options:

–         Refinance the balloon for a few more years if they wish to keep the vehicle

–         Trade the vehicle in or sell it privately and, if there is a difference between the sale proceeds and the balloon payment, they either keep the difference or make up the difference.

–         Payout the balloon directly and retain the vehicle.

We always guide our clients on what balloon payment they should have based on their usage patterns.  It’s always good to be able to have some surplus when you sell the vehicle.  Most importantly, the interest rates on a personal lease are lower than what you’d pay on a personal loan.

Debt consolidation strategy:  Often borrowers come to us looking to consolidate high interest rate debt into a lower interest rate facility.  If they own a vehicle or have equity in a vehicle, we often suggest that they sell that vehicle and use the proceeds to pay down the high interest rate debt.  They then purchase a new vehicle using a personal lease, which in effect transfers the old high interest rate debt into a low interest rate debt.  Further to this, they may also reduce their monthly outgoings, providing excess cash to direct to the high interest rate debt.

The second product that has been popular over the past few years is the Novated lease.  Unfortunately, this product is not available to everyone and its availability is dependent upon whether your employer allows you to salary package.  If you’re one of the lucky ones, then you’ll be able to finance your vehicle at business rates and in the same process obtain quite a significant tax deduction each year.  If you would like to know more about Novated Leases and how salary packaging works, or you would like us to chat to your employer to detail the benefits to them of allowing salary packaging, then please contact us.

Beware of the Low Interest Rate deal..it’s not as good as you think

When something sounds too good to be true it normally is.  Many 0% or very low interest rate offers have hidden catches so be very careful.

Often the finance packages offered by the dealer are a “subvention” finance package.  This means the finance is being subsidised by the car dealer.  They do this by pushing up the price of the vehicle being purchased to ensure  that (a) they get their normal profit and (b) the finance company being used also gets subsidised for the interest lost providing such a low interest rate.

Try a cash sale and negotiate a discounted price on the motor vehicle (can often get up to 10% off).  Then get motor vehicle finance with Capital Funding Group and end up paying lower monthly repayments.

Remember don’t be tricked by the 0% – there are catches so read the fine print very carefully. See our article, Be Wary of the Low Interest Car Finance Con, in relation to this.

To make the most of your car finance, you need to ensure you get the correct finance and correct structure for your needs.  Like all finance there is not a one size fits all loan.  Contact us now to discuss your car finance needs.

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