How to Finance a Car
For many people in Australia, owning a car is more than a nice-to-have, it’s a necessity. Cars are more than just expensive assets, they can be a gateway to a range of mobility solutions for work, travel and the basic running of our day-to-day lives. Australians purchase more than 1 million new cars each year on average, and just as there is a seemingly endless variety of brands, vehicles and technologies to choose from, there are lots of ways for you to get into the car of your dreams.
In this article, we’ll look at some of the main car financing options in Australia, and help you find a tailored solution to suit your needs.
What is Car Financing?
Car financing is a way for you to get into the vehicle of your choice, without having to stump-up the cash to purchase it outright. There are many reasons why someone would choose car financing over an outright purchase: some of main ones include reducing the impact on household or business cashflow, enjoying a range of savings and tax benefits, or taking advantage of a salary sacrificing package with an employer.
Let’s look at how to finance a car with some of the main options available in Australia.
Types of Car Financing Options in Australia
1. Car Loans
A car loan is one of the most common forms of financing. A lender provides the customer with funds to purchase a vehicle, with the vehicle itself used as security on the loan, known as a secured loan.
This option provides you with the choice of flexible loan terns and competitive interest rates, and the possibility of having a balloon payment at the end of the loan term to reduce loan repayments. The downside with this option is that it might not include other vehicle expenses and running costs, such as insurance, fuel and maintenance; and repayments may come out of your after-tax income, rather than other financing options where repayments may come out before.
2. Novated Lease
Also known as salary packaging or salary sacrifice, a novated lease is a three-way agreement between you, a leasing or finance company, and your employer who agrees to make car loan repayments on your behalf from your pre-tax salary.
With a novated lease, you have the surety and consistency of regular loan repayments, all of the vehicle’s expenses are included in the lease repayment (such as fuel, insurance, registration and maintenance), and because repayments are made pre-tax they could result in significant tax savings. You can also lease more than one vehicle, depending on your package with your employer, all included in one monthly repayment.
Still looking at the best way to a finance a car in Australia? Check out some of the key factors to consider below.
3. Electric Vehicle (EV) Financing
As the world continues to embrace electric mobility, there are many different finance options and incentives to get you behind the wheel of one yourself. The Government is also behind this push and are supporting some lenders in order to facilitate lower-cost loan options for EVs, including Metro Finance.
Our MetroEco product offers customers a range of reduced and flexible rates and terms on electric vehicles as well as other sustainable technologies, including at-home charging, solar energy and battery storage.
How to Choose the Best Way to Finance a Car
There are many different factors to consider when selecting a financing option – here are some you need to think about when looking to find the best way to finance a car for your needs:
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It’s important to shop around to make sure you’re getting the best rate when it comes to the interest charged on a potential loan, and whether the interest rate is fixed throughout the term, or variable, based on market factors outside of your control.
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Most loan terms are between three to five years, but they can differ. Just like interest rates, the duration of your loan will also affect how much your repayments will cost you over the term – be sure to factor this in, and how you might be placed financially across the entirety of the loan period, not just at the time of applying.
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Always read the fine print! It’s critical to understand all your obligations and liabilities when entering into a loan or lease agreement and being comfortable with any additional fees – which might include late payment or setup fees, or penalties for paying off the loan early.
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Lenders will have different eligibility requirements depending on the finance product you choose. Typically eligibility requirements are in place for both the vehicle, whethers it’s new or used, and the person wishing to buy it. To find out more about eligibility for a car loan with Metro, head here.
Steps to Get a Car Loan
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As with any financial decision or purchase, it’s important to assess your own budget before committing. Remember – a loan or lease may have a three or even five-year term, so you need to be confident that you will be able to make repayments throughout the agreement period, cover any final balloon payments, as well as keeping the car running and maintained.
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Not only is it wise to understand the types of finance options on offer, it’s also a good idea to shop around to make sure you’re getting the best deal to suit your needs. There are plenty of online tools to help you compare lenders and their products.
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Any financial product or agreement will require documentation to confirm your identity and suitability. Make sure you understand the eligibility requirements, and ensure you have the right documents to support your application. Your accountant, financial adviser or employer may be able to help with this, as well as a broker, if you’re using one.
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Once you’ve decided and are ready to purchase/start a loan, submit your paperwork and supporting documents. Once again, it always helps to have your financial team support you through the application process.
Tips for Financing a Car Wisely
While purchasing or leasing a new car can be exciting, it’s important to take some of the emotion out of the decision and really think about your needs. Some questions you should be asking yourself include:
- Is this the right vehicle for my needs?
- Can I afford to pay for a loan/lease for the entire team?
- What about running costs and maintenance?
- What is the best way to finance the vehicle to benefit my budget and cashflow?
- Am I comfortable with the loan/lease terms and understand all of my financial obligations?
- What do I intend to do with the vehicle at the end of the term? Keep it? Sell it? Trade it in for a new vehicle?
- (In the case of a novated lease) What happens if I change employers?
Contact Metro Finance for Expert Help
Want to know more? Chat with a Metro expert or one of our friendly brokers to learn more about the type of finance products we offer, and how we can create a tailored financial option to suit your needs.
Secured Car Loans - Frequently Asked Questions
Can I get a secured car loan with a poor credit score?
Contact your asset finance broker who can assist you with applying a commercial finance loan or alternatively you are welcome to contact Metro who can provide you with a list of accredited Metro brokers who you can get in touch to arrange an application.
What happens if I can't make the payments on my secured car loan?
If you’re unable to make payments on your secured car loan, it’s important to act quickly. Since your car serves as collateral for the loan, the lender has the right to take back the car and sell it to recover the money you owe.
Before things get to that stage, many lenders are willing to work with you if you’re facing financial difficulties. If you’re struggling to make payments, it’s a good idea to contact your lender as soon as possible to discuss options like adjusting your payment plan or temporarily pausing payments (hardship arrangements). Ignoring the issue could lead to penalty fees and damage to your credit score, making future borrowing more difficult.
Can I use a secured car loan to buy a used car?
While the exact timeframe can vary depending on various factors, including the completeness of the application and the complexity of the financing request, we strive to provide a decision as quickly as possible.
