Buying a car on finance (loan)
A car loan may be secured or unsecured, depending on whether you put up your car (or other asset) as security for the loan. Secured means you may get lower interest rates. If you fall behind on repayments, your car may be sold to recoup the money.
A car loan term is usually between 12 months and 5 years. The average term chosen is generally longer to help reduce repayment amounts, but this is at the expense of being locked in to an inflexible payment schedule and the same car for the duration. If you do want to change your payments, length of the loan or your car, you may be charged an early termination fee. There is also a chance that your loan application may not be approved. Credit requirements are getting a lot tougher and many people are having their loan applications rejected.
Fixed rate (where the interest rate is locked in for the term) or a variable rate (where the rate may go up or down over the term), plus any fees and charges. Unsecured means your car is not put up as security, but you will likely pay a higher interest rate.
Some lenders can offer interest in the 5% p.a. range, which is much more competitive than what you will find for an unsecured personal loan which can have interest rates of between 10-20% p.a.(1)
You will need to budget for the full cost of the car. Some bills recur frequently, like registration, insurance and servicing, while others are less predictable, like repairs, tyres and other expenses due to general wear and tear.
References
1. https://www.finder.com.au/aussies-reliant-on-car-loans
Buying a car on finance (loan)
A car loan may be secured or unsecured, depending on whether you put up your car (or other asset) as security for the loan. Secured means you may get lower interest rates. If you fall behind on repayments, your car may be sold to recoup the money.
A car loan term is usually between 12 months and 5 years. The average term chosen is generally longer to help reduce repayment amounts, but this is at the expense of being locked in to an inflexible payment schedule and the same car for the duration. If you do want to change your payments, length of the loan or your car, you may be charged an early termination fee. There is also a chance that your loan application may not be approved. Credit requirements are getting a lot tougher and many people are having their loan applications rejected.
Fixed rate (where the interest rate is locked in for the term) or a variable rate (where the rate may go up or down over the term), plus any fees and charges. Unsecured means your car is not put up as security, but you will likely pay a higher interest rate.
Some lenders can offer interest in the 5% p.a. range, which is much more competitive than what you will find for an unsecured personal loan which can have interest rates of between 10-20% p.a.(1)
You will need to budget for the full cost of the car. Some bills recur frequently, like registration, insurance and servicing, while others are less predictable, like repairs, tyres and other expenses due to general wear and tear.
References
1. https://www.finder.com.au/aussies-reliant-on-car-loans
Leasing a car
It’s easy to think of a lease as ‘borrowing’ a car for an agreed period, usually 2-5 years.
You do not own the car, and there are a number of restrictions around how you can use the car.
A car lease is often a lower per week cost than a car loan, but when you do the total calculations, continually using leases is often more expensive over the long term. There are usually also administrative fees to consider, and how competitive the interest rate is that you are being given.
The type of lease you would likely consider is a Novated lease. This allows you to make your lease payments to a finance company (usually of your employers choice) through salary sacrificing. There are numerous tax implications and some benefits, which you should seek advice before making a decision, and you will need your employers agreement first. A novated lease can also allow you to bundle expenses such as insurance, servicing, registration, fuel and tolls.
At the end of the lease you could choose to pay a significant lump sum called a balloon payment, sell or trade-in the car, or extend the lease to keep the same car on the same terms.
Leasing a car
It’s easy to think of a lease as ‘borrowing’ a car for an agreed period, usually 2-5 years.
You do not own the car, and there are a number of restrictions around how you can use the car.
A car lease is often a lower per week cost than a car loan, but when you do the total calculations, continually using leases is often more expensive over the long term. There are usually also administrative fees to consider, and how competitive the interest rate is that you are being given.
The type of lease you would likely consider is a Novated lease. This allows you to make your lease payments to a finance company (usually of your employers choice) through salary sacrificing. There are numerous tax implications and some benefits, which you should seek advice before making a decision, and you will need your employers agreement first. A novated lease can also allow you to bundle expenses such as insurance, servicing, registration, fuel and tolls.
At the end of the lease you could choose to pay a significant lump sum called a balloon payment, sell or trade-in the car, or extend the lease to keep the same car on the same terms.
Car subscription
Car subscription is a simplified way to get into a car. Unlike both finance and leasing there are no long-term lock in contracts, just a month by month subscription. You can choose the car that suits your lifestyle, then Switch to another car to suit your needs based on the subscription option you have chosen.
A car subscription also allows you to pause your payments and hand back your car. There are no penalties or termination fees when you give 30 days notice and you can easily resume your subscription when you are ready.
Costs are all transparent and predictable. Registration, insurance and servicing and administration are all included in the monthly subscription. You only need to pay for fuel and tolls.
Some subscription options give you a higher kilometre allowance. By choosing the option that suits how you will use the car, you can make your running costs more efficient.
Unlike finance or a lease, subscription allows you to Switch cars. This provides more flexibility and freedom of choice – not just in the car you drive, but in the lifestyle you lead as you are not locked into one car. When you Switch, the car is delivered to you at no additional cost.
Car subscription
Car subscription is a simplified way to get into a car. Unlike both finance and leasing there are no long-term lock in contracts, just a month by month subscription. You can choose the car that suits your lifestyle, then Sswitch to another car to suit your needs based on the subscription option you have chosen.
A car subscription also allows you to pause your payments and hand back your car. There are no penalties or termination fees when you give 30 days notice, and you can easily resume your subscription when you are ready.
Costs are all transparent and predictable. Registration, insurance and servicing and administration are all included in the monthly subscription. You only need to pay for fuel and tolls.
Some subscription options give you a higher kilometre allowance. By choosing the option that suits how you will use the car, you can make your running costs more efficient.
Unlike finance or a lease, subscription allows you to Switch cars. This provides more flexibility and freedom of choice – not just in the car you drive, but in the lifestyle you lead as you are not locked into one car. When you Switch the car is delivered to you at no additional cost.