The financier (bank, credit union etc) lends the customer the money to buy a new vehicle. It is the simplest of loans but you need to be financially sound and prepared for some extra expenses. It can be secured or unsecured (higher interest rate). The vehicle is the security so the financier will demand it to be fully insured.
Upside:
- Finance can include on-road costs
- Agreed monthly payments over agreed time period
- Low fixed or variable interest rate
- Flexible terms for time and repayments
The financier buys the car and then hires it to the consumer over a set period. Can be for individuals or businesses. Monthly payments generally pay out the entire loan in the set period and the vehicle is transferred to the motorist when all payments are complete. Mostly replaced by chattel mortgages.
Upside:
- Flexibility allows financing of the total price; a deposit or trade-in; or even allow for lump sum balloon payment
- Repayments and interest rates are fixed
- East to modify to suit borrower's budget
- Low capital outlay and no GST on repayments
The financier buys the car and then leases it to the motorist. This offers the immediate use of the car with little to no capital outlay. These leases are available for individuals and businesses where the car is for business purposes. The motorist pays fixed, monthly rental payments and is financially responsible for the maintenance and trade-in residual risk of the car. At the end of the lease period, the motorist is given the option to refinance, return, sell or buy the car for residual amount.
Upside:
- Immediate use of the car with little or no capital outlay
- Repayments can be taxed deductible but GST is payable
- Lease payment is made from pre-tax dollars
- Interest rate is fixed and is low because finance is secured against the car
The employee salary sacrifices in exchange for an equal value of vehicle benefits and leases the car directly from the financier. The employer has to pay the financier through a novated deed on the employee's wage. Operating costs (registration, insurance, servicing, tyres etc) are covered by the motorist, who has sole responsibility for the car on termination of employment.
Upside:
- Can buy the car at the end of the lease
- Can be leased for 100 per cent private use
- Employee can salary sacrifice with pre-tax income
- Employee has choice of a preferred vehicle
- Employer benefits because it is a simple way of boosting a remuneration package
An agreement where the financier buys the vehicle and rents it to the motorist. The financier retains ownership of the car. The motorist has no risk associated with ownership, including the residual at the end of the period. At the end of the term, the motorist can buy the car, continue to rent it or change to another (usually newer) car.
Upside:
- Businesses don't list operating leases on balance sheets so it doesn't affect debt ratios, though this may change
- Fixed repayments over a fixed period
- No risks with ownership and residual payments
- Rent is tax-deductible
- Motorist takes ownership at time of purchase
- Minimal capital outlay
- Flexible contract terms
- Fixed repayments which can be tailored
- Repayments exempt from GST
- Depreciation and interest tax-deductible
- Lower interest rate as finance is secured against the car
We are here to assist you through the finance process and beyond, without obligation or commitment. Please feel free to contact our Finance Manager Nigel Brohier, to arrange an appointment or discuss any queries further..
