How do you know what loan type is right for you?
The first part is to determine if you are an individual or business borrower and if the vehicle or equipment will predominantly be for personal or business use (more than 50%). The second part is understanding balloon figures or Guaranteed Future values which are very similar in the fact that they help to reduce the instalment amount and leave a large amount at the end of the term. The difference is that Guaranteed Future Values are only offered by the dealership financiers and the value is determined by the term of the loan, amount of kilometres travelled at the end of term and vehicle condition plus it needs to be returned to the manufactures dealership.
These loans are generally used to purchase cars, bikes, boats,caravans, jet skis or quad bikes. Borrowers are individuals in nature and have the pease of mind knowing that their loan is regulated by the National Consumer Credit Protections Act 2009 (Cth) (NCCP). This legislation is designed to protect consumers and ensure ethical and professional standards in the finance industry. Loan options can include Consumer loans, Personal Loan and Novated Lease*
Like personal use, you can purchase cars, leisure or marine vehicles and business equipment for business use. The difference is that the equipment or vehicle being financed needs to be predominantly used to generate business income. This loan type is also unregulated by the NCCP and as such for some business applicants it opens an option to apply for a low documentation loan. Loan options can include Finance Lease, Hire Purchase and Chattel Mortgage.
A Consumer Loan is a convenient and flexible way for an individual to obtain finance to purchase a New or Used vehicle of their choice. The vehicle is used as security for the loan with the financier taking a financial interest via the Personal Property Securities Register (PPSR). Clear title is transferred when the full payment has been made.
Key Features and benefits;
Lump sum payments are able to be made at the start in order to reduce the loan repayments.
Balloon/residual options may be available on new or near new vehicles.
Generally, loan terms of 12months to 5 years are available and in some cases can be extended to 7 years.
In most cases repayments can be made weekly, fortnightly or monthly in arrears.
In some cases, you may be able to finance other associated cost i.e. Comprehensive insurances, registration and on-road cost.
Fixed interest rate.
No GST on loan payments including any balloon payment. GST may be payable on the purchase price of the vehicle and other items like insurance.
A personal loan is a good product for individuals to obtain finance for general purposes. The funds are provided as an unsecured loan and funds are directly deposited into the nominated bank account.
Key features and benefits
Loan terms from 12 months to 5 years
Fixed or variable interest rate options available depending on the lending institution
Loan amounts from $5,000 to $50,000 depending on applicant and lending institution
Flexible repayment options - weekly, fortnightly or monthly repayments generally paid via Bpay
Generally cheaper than credit card interest rates
A novated lease is designed for the financing of a motor vehicle which is generally included in a salary packaging arrangement where the payments and some of the running cost are paid for from the employees pre-tax salary. It is a tripartite agreement between three parties a finance company (Lessor), an employee (Lessee) and the employer (Payee). The employee has the exclusive use of the vehicle and the employer has the responsibility of making the lease payments under the novation agreement.
A novated lease may give rise to a fringe benefits tax liability and the Lessee should seek independent advice on this issue from their Accountant.
Key features and benefits to the Employer
Taxation benefits - the lease payments and running expenses are generally tax deductible.
No obligation for the vehicle on termination of the employees employment.
The lease liability is off balance sheet.
Employment on-cost savings compared with paying the equivalent as a salary .
Key features and benefits to the Employee
Flexibility in choice and use of the car that may not otherwise have been provided.
Tax effective as payments are made from pre-tax earnings.
Transportability of the lease on termination of employment if the new employer is accepts the novation agreement.
The ability to have the car used by the employees family, dependant on insurance restrictions.
The ability to make an offer for the vehicle at the end of the term.
A Finance Lease is best suited for business customers that want to reduce payments & not have the asset on their balance sheet. The financier owns the equipment and the Lessee has no right to purchase either during or at the end of the term, however in most cases the financier can consider an offer to purchase the asset for the residual value. With a Finance Lease only the original price of the unit (exclusive of GST) is financed. GST is then included on each subsequent payment. A Finance Lease has a residual value that is set on the basis of taxation guidelines or market conditions. The higher a residual value, the lower the monthly repayments. The residual value at the end of the term will include GST. Legally no equity can be included in the unit & therefore deposits or trade-ins are not allowed.
Key features and benefits
Specific asset security. The lessee does not have to tie up additional business and/or personal assets.
100% financing of the value of the goods.
Other costs associated with the lease can be financed on the contract such as Comprehensive Insurance, registration and on-road costs.
Fixed cost contract.
A fixed rate and term make for accurate budgeting and also provides a hedge against market fluctuations.
Lease rentals can be specifically structured to suit the business cash flow.
Lease rentals, and the associated costs of running the specific asset, are allowable tax deductions if the asset is used to generate assessable income.
Finance Leases are off-balance sheet transactions and require minimal business administration.
Residual value is predetermined.
COMMERCIAL HIRE PURCHASE
A Commercial Hire Purchase contract is best suited to business that want to build equity into the asset, unlike the Finance Lease ownership is transferred automatically at the end of the term. With Commercial Hire Purchase the amount financed includes GST, and monthly payments are calculated in arrears. The customer claims back the GST portion of the purchase price in their next GST return and provided the equipment or vehicle is being used to generate business income the interest components of the payments along with depreciation are tax deductible.
Key features and benefits;
Specific asset security. The Hirer does not have to tie up additional business and/or personal assets.
Ability to hire less than the total invoice price of the goods by way of deposit or trade-in vehicle
Other costs associated with the purchase can be financed on the contract such as Comprehensive Insurance, registration and on-road costs.
Fixed cost contract. A fixed rate and term make for accurate budgeting.
Hire charges can be specifically structured to suit the business cash flow.
A larger final payment called a Balloon Payment can be structured to reduce the regular monthly rentals, improving the Hirer's cash flow and making the vehicle more affordable.
The interest component of the payments and the depreciation on the goods are tax deductible if the asset is used to generate assessable income.
Under a Chattel Mortgage the financier advances funds to the customer to purchase a vehicle or equipment, and the customer takes ownership of the vehicle (chattel) at the time of purchase. The financier then takes a "mortgage" over the vehicle as security for the loan, by registering their interest over it with the Personal Property Securities Register (PPSR). Once the contract is completed, the security interest is removed giving the customer clear title to the vehicle or equipment.
A Chattel Mortgage is suitable for those companies, partnerships and sole traders who use the cash method of accounting (they record business income and expenses as and when they occur) as it allows them to claim the GST in the vehicle's price up-front.
GST is charged in the purchase price of the vehicle but not the monthly rental or the contract balloon (final instalment). Where the customer is registered for GST, they can claim some or all of the GST contained in the vehicle price as soon as they lodge their next BAS, rather than over the term of the loan. Under a Chattel Mortgage the customer can claim the interest charges on the contract and depreciation up to the Depreciation Limit as a tax deduction.
Key features and benefits;
Flexible contract terms ranging from 12 to 60 months (some lenders can go to 84 months)
A residual value (balloon) can be applied to the contract enabling the monthly repayments to be tailored to a budget
Fixed interest rates
Monthly repayments are fixed
Depending on the lender repayments can be in advance or arrears
Deposit (either cash or trade-in) may be used
A tax deduction is available when the vehicle is used for business purposes
A customer who is registered for GST can claim the GST contained in the vehicle price as an input credit on their next Business Activity Statement (BAS)
No GST is charged on the monthly repayment or the contract balloon amount
The finance is secured against the vehicle, allowing lower interest rates