24 January 2024
It’s time to get yourself a set of wheels!. You have some savings but that’s a far cry from what you need to buy the car. Will you qualify for a car loan?
What do you do ? Do you have any options?
Plenty Of Options
The good news is that there are several options. It’s important to assess and evaluate each one of them to your unique situation.
Option # 1 – Save The Money
Save towards it. You feel this one is not practical at all. The car you want costs $25,000, it will take forever to save that amount. And you need the car now !
Sure I understand. This option is feasible when you want to buy an cheaper set of wheels.
For example, you’ve spotted a car online for $10,000 and you have $5,000 in your “Car Savings” account. By saving $200 a week, you can buy your car in 6 months. In fact the latest NAB research shows that people can save upto $450 a month by cutting down takeaway coffees, eating out at restaurants, cutting off streaming services, reducing petrol consumption and reducing food delivery services.
You don’t have to go through the hassles of loan paperwork and your borrowing capacity will be intact! Win -Win.
This option can also be used if you have larger savings and don’t want to apply for a car loan.
For example, you have $15,000 in your “Car fund” and are eyeing a SUV for $27,000 and you can save $500 a week ( basically forego a lot of Uber Eats!) in 6 months time you can have your dream car.
Option # 2- Car Loans
You need a car quite urgently. After doing the math, you realise you cannot save the amount required that quickly.
Do your initial research on websites like Finder or Canstar and they will help you familiarise yourself with terms like application fee and interest rates on the car loan etc.
You can play around with the car loan term and see what you can comfortably afford to repay on a monthly basis.
Remember to also look at the conditions on early repayment. In case you get a bonus or a tax refund, this can be used to pay off the loan. Also remember, the cheapest car loan need not be the best. They maybe cheap in terms of the car loan interest percentage but application fees and monthly fees could be high.
It’s hard to make a call on the best car loan in Australia, as it really depends on your personal circumstances.
Start with your bank
You can approach the bank you have been using for years. They know your history and would like to retain your loyalty.
A CommBank car loan may work if they offer you competitive vehicle loan interest rates. There is no standard methodology a provider uses whilst calculating a car loan. Make sure you double check it with your own financial calculator. Car loan percentage rates can vary from bank to bank.
A Westpac car loan or ANZ car loan maybe better for you depending on your history with them.
Usually there should be no difference on used car finance and a new car loan. It usually depends on the amount of paperwork they require from you. Your job history and credit score will have more of an impact. Macquarie car loan or St George car finance may charge lower interest rates than new providers as they are well established institutions.
Auto finance or dealer finance
If you are in the market for a new car, please be vary of the car finance that maybe offered by the dealership. The auto finance interest rates will usually be 2-3% higher than what is available in the market. It pays to do your research.
Mazda gives you excellent customer service and you feel obliged to talk with Mazda Finance. Go ahead, nothing wrong in having a chat. But always take the paperwork home and do your comparison.
If you are self employed, you could get a business car loan which could have lower interest rates than what is on offer in the market. This one maybe offered by the dealer but should have a lower car loan interest rate.
Option # 3 – Novated Lease
Ok, this one is a little more complicated than the first two.
There are two parts to it – Firstly, you are paying a portion of the monthly instalments from your pre tax dollars. So that’s a tax saving right there.
Secondly, your lease term could be 1-5 years depending on what you choose.
The most important part is that your employer has to be on board as the agreement is between your employer and the novated lease company and yourself. Maxxia novated lease is one of the largest providers in Australia. Remserv novated lease is another provider based in Queensland.
At the end of your lease term, you can either choose another car, end the lease or pay the balance residual amount and keep the car.
This option is suitable if you are a high income earner and you are single or if you are partnered you could earn even around $65,000 and you would see the benefits.
With the federal government’s EV discount, employers are able offer a salary packaged EV( Electric Vehicle) with FBT(Fringe Benefit Tax) exemptions available for electric vehicles. This has created a renewed interest in novated leases as an option. Many employers want to be seen as doing the right thing and this perk to their employees will also help them meet their ESG goals.
If you are buying a petrol car, you may want to look at the amounts they are factoring in for insurance and fuel. They could be higher than what you could find on the market.
You really need to work out the numbers with this option, though the push on Electric Vehicle’s seems to make novated lease as an option worth the effort.
Option #4- Car Sharing Service
Ok, so this is an ongoing car rental service rather than an outright purchase.
If you mainly use public transport during the week and only need the car on the weekend this could be a suitable option for you.
Providers like GoGet and Uber car share have made this possible. GoGet claim that they maintain all their cars whilst in Uber share, you get a car owned by literally a neighbour. Again, like all the options , you must check the fine print. GoGet gives you an allowance of 100 km/day whilst in Uber car share it is an additional charge thought the headline rate maybe lower. Accessing a GoGet may take a while depending on the type of car you want. With Uber Share you get a wider variety of vehicles.
Uber share is different from a ride share which is the concept of sharing a Uber car with other passengers. This reduces the cost of your fare significantly.
Summary
Do remember there are a lot of ongoing costs associated with car ownership.
For example, registration(rego) fees, CTP insurance, comprehensive insurance, car servicing, fuel and toll charges. So if you are applying for a car loan, apart from the monthly instalments you would need to factor in around $350 a month for these costs. Of course , it will depend on the size of the car and how many kms you drive.
If you opt for Uber car share , you may pay around $210(200km)for a small car for the weekend. You could even use this service to determine which car you would like to buy.
Uber share or GoGet may suit you if you need a car only occasionally. You can even use a regular Uber or Uber pool if there are those occasions when you need someone else to drive you.
Before you actually embark on a car loan or a novated lease write out all the numbers and understand your monthly cost.
Determine whether this aligns with your other financial goals.
Most importantly, don’t rush into a decision, another car will always be waiting for you.😊