Your Car Financing Options: 4 Types Of Car Loans

By Author: Belinda Darling
Total Articles: 152
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Many people can get through life without even realizing that there are different types of car loans in Melbourne. "I thought that the lender just gave you the money, then you paid them back with interest?", we often hear. In fact, there are some types of car loans that can make it cheaper to upgrade your car than keep going with a clunker, become more economical the more kilometers you drive and generally save you money and direct your finances more efficiently. Today we explore those different types of car financing, and the situations that each suits best.

Secured Car Loans
In Melbourne, these are the most common type of car loan across both the business and private borrowing spheres. They are popular for their simplicity and accessibility. The key elements are:
• The borrower takes out a Melbourne car loan for the exact purchase price of the vehicle
• The loan is repaid with interest
• The loan uses the purchased vehicle as security
• When the loan is repaid, the title to the car rests with the borrower.

Car Leases and Novated Leases
These are the ...
... second-most common form of car financing. The key things to know about vehicle leasing are:
• The lender purchases the car, then rents it out to the borrower for a set monthly amount
• This monthly amount is reflective of the purchase price plus interest
• At the end of the fixed rental term the borrower can pay a residual amount to own the item, or continue renting.
• Having a higher residual can lower the initial monthly repayments

And, for businesses:
• The lease payments are tax deductible when the vehicle is used for business purposes
• The GST portion of the purchase price is claimed by the financier – so the borrower only pays back the pre-GST vehicle price

In a novated lease, an employer purchases the car on behalf of an employee, who then pays the lease payments through their pre-tax income. This is only available when salary packaging is provided as part of an employment contract, with the employer paying fringe benefits tax.

Commercial Hire Purchases
A commercial hire purchase agreement works in almost the same way as a car lease for car financing. However, there are some differences in the tax strategies which offset the cost of the car for business purposes. The main differences between a commercial hire purchase and lease are:
• If the hirer is registered for GST, they claim the input tax credits for the GST paid on the purchase price
• If your business uses accrual accounting, the GST included into the agreement can be claimed as a lump sum on the very next BAS
• The residual does not attract GST
• Depreciation of the vehicle and interest charges on the contract can be claimed as tax deductions

Chattel Mortgage
This form of car finance in Melbourne is similar to a simple secured loan. It differs in the fact that input tax credits can be claimed on the BAS is the car is used for business purposes, a residual value can be applied and a deposit, either cash or a trade-in vehicle, can be used.

Whether you’re a business looking to maximize taxation benefits through a commercial loan or an individual who needs