Auto Finance 101

July 29, 2019

Your dream car has appeared and is everything you knew it would be, a topspec model with lots of good stuff, low kilometres and a knockout price. Even the colour is spot-on. But how are you going to pay for it? Do you have enough cash in the bank? Will you have to sweet talk mum and dad? Or will you need to take a personal loan and pay it back over time?

Understanding your car finance options

There are so many payment methods to choose from and knowing which one is right for you can seem a little overwhelming at the start. With a bit of research, choosing the right finance option for your car doesn’t have to seem like such an obstacle.

Personal Loan

Best for: first-time car owners

Pros — Easy to understand and easy to budget for.
Cons — Can have high interest rates.

A Personal Loan, for example, means you can borrow everything needed to pay for the car, repaying it in regular, set amounts and spreading your repayments over an agreed time.

Car Loans

Best for: first-time car owners

Pros — Easy to understand and easy to budget for.
Cons — Defaulting on your repayments means your car might be repossessed.

Car Loans are like personal loans but the key difference is that the car becomes security for the loan. Defaulting on your repayments means they might take back the car. The upside with this is that secured loans often come with a lower interest rate than a personal loan.

Novated Lease

Best for: employees with salary packaging

Pros — Can save you a sizeable amount of tax money in the long run.
Cons — Can be risky if your job is not secure.

A Novated Lease is great for people who work for companies that offer salary packaging. The car’s monthly repayments, running costs (fuel, servicing, registration), and so forth are paid from your pre-tax income. If you leave your job, you can either choose to pay the remainder owing in one payment or transfer the Novated Lease to your new job.

Hire Purchase

Best for: budget-minded people

Pros — Has a locked-in monthly cost. Protects you against fluctuating interest rates.
Cons — You aren’t the owner of the car until your final payment. Can be a messy situation.

Hire Purchase is like a secured loan but slightly different because the financing

company buys the car for you and you rent it back for a set period at an agreed price. You are only the owner of the car at the end of the agreed period when you make a final payment, which is usually a big chunk of cash. The credit provider has the option to say no to your offer and you might end up without a car.

Credit Cards

Best for: people who have a great credit history, and strong self-control

Pros — You can earn points and manage multiple purchases from the one card.
Cons — Credit cards can quickly get out of control and land you in a big pile of debt.

Then there are the credit cards we all use to pay for the things we need or just really really want. Those things can include cars. In fact buying with a credit card can work in your favour if you want to borrow an amount lower than the loan maximum and are particularly great if you have a low-interest credit card.

Or you can buy your car from Carzoos using the clever Simplr process and wonder why nobody ever thought of this before. Simplr, an independent finance brokerage, makes car financing painless by finding the best deals from the best lenders that best suit you.

Firstly, you choose a car from the extensive Carzoos range, they put your financial needs out to their partners and get quick, on-the-spot, obligation-free quotes from multiple lenders so you can pick the plan that works best for you.

This method allows you to get the most competitive rates free of any nasty surprises and with all fees, charges and associated costs detailed.

Tips for buying your second-hand car privately

If you have not heard the Latin expression “caveat emptor” (“let the buyer beware”) you should at least heed its meaning because eventual ownership can be a very involved process. Why? Because buying privately means getting checks and inspections done, some for legal requirements and others for personal satisfaction.

All states and territories will require an official roadworthy certificate as the minimum condition of sale. To find out what applies in your state or territory, check with the relevant government department.

And while a good pre-purchase inspection is not a legal or loan requirement it is worth getting one done through an accredited outlet such as Redbook or from your state or territory motoring club.

For your personal satisfaction a Personal Property Securities Register (PPSR) check is a necessity, especially if you plan to borrow money to buy the car. As the buyer, you are responsible for any outstanding debt on the car and, if it has been stolen and “flipped” you could even lose it for good, as well as losing any money you have paid.

The PPSR (previously known as a “REVS check”) will tell you if the car has money owing on it, has been stolen or written-off. If it has been written-off you are buying a rebirthed car and that is something to be avoided at all costs for both legal and safety reasons.

PPSR reports are inexpensive and not only give you peace of mind but also give a comprehensive picture of the car’s history, including its odometer records.

Buying a car often means taking out a loan to pay for it and if the car is being used as security the lender will ask for a finance inspection, something that tells the lender the car is what it claims to be. That means a registration check, inspection of the car’s compliance plate, photographs of the car and a PPSR check, just to ensure that everything is above Board.

And while a good pre-purchase inspection is not a legal or loan requirement it is worth getting one done through an accredited outlet such as Redbook or from your state or territory motoring club.

Such inspections give the car a full visual, mechanical and equipment check and are backed with a comprehensive written report so if there are problems with the car you can ask the seller to fix them or back out of the sale. Think of it as an affordable way of finding out every little detail before you buy so you can avoid any unpleasant surprises afterwards.

Modest monthly repayments also mean you can pay out the loan more quickly and have a social life. It also means you have more cash available for the ongoing costs of car ownership. Yes, sorry, but you still have to pay for petrol, registration, regular servicing, insurance and tyre replacement.

Once all of that legwork is done there is just one more thing left to do: get out there and enjoy your new car.