A car is an absolute necessity for a lot of Australians; most everyone, in fact.
Buying a car, be it brand new or simply “new to you”, can be a daunting process. After all, it may require a considerable amount of money to purchase one, and there are several options you can choose from to pay for it. So what are the options?
- Cash out
One of the quickest and easiest ways to own a car is to make saving a habit so you can generate enough money to cover the cost of purchasing a car. Buying a vehicle outright in cash automatically gets rid of half the paperwork and background checks. At the same time, it frees you from interest charges.
The problem here is, this is not an option most people can take. Not everyone can pay the full amount right away without depleting their savings. But if you can sacrifice a bit to save enough for the vehicle you want, do so.
- Traditional car loan
Most car buyers these days apply for a car loan instead of paying in full with cash. A car loan provides people a more flexible way of paying off the car.
Getting pre-approved for a loan is a powerful advantage – it will allow you to do the math to determine how you can manage monthly payments as well as how much money you can actually use to buy a car.
Additionally, pre-approval for a loan will provide you with negotiating control when talking to a dealer and choosing a compatible car for your loan program. So, how do you easily get pre-approved?
- Make sure you have a good credit score.
- Provide documents that can prove your financial capability to pay off the loan.
It’s important to note that car loans or financing packages are not created the same. So, take the time to measure up all your options against each other. Study all the pros and cons until you identify the package that can best meet your specific requirements.
- Novated lease
This is an arrangement to consider if you are an employee of a stable company. Basically, it creates a three-way agreement between you, the company you work for, and the finance company.
The novated lease is a salary-sacrificing scheme. It gathers all the costs of the vehicle you want and allows you to pay for them using pre-tax dollars. And because the payments for the vehicle are taken out of your income, you can save a significant amount of money on tax returns at the end of the year.
This is another option to consider if you are uncertain if you want to buy a car right away. There are car leasing companies that offer this program.
Essentially, you lease a vehicle for a certain period of time. You pay for this arrangement (whose cost, by the way, can be much cheaper) but you have the option of keeping the car at the end of the term if you end up loving it. You just need to pay for the remaining costs, and the car is all yours.
- Chattel Mortgage
This is a product offered by car loan companies, which serve as the financier. The company will provide you with the funds to purchase the vehicle and own it. However, it will take a “mortgage” over the vehicle as a “security” for the loan. The company will then register its interest with the PPSR.
When the contract is completed, the security interest is lifted and you can put the vehicle under your name. The best advantage of the chattel mortgage option is you can actually save on tax if you are registered for Goods and Services Tax. You can claim the GST from the upfront price of the vehicle as input credit, lowering the total cost of the car.
So, other than paying in cash upfront, these are some of the options to take when you wish to buy a car. They can reduce the total cost of the purchase and, at the same time, make payments a whole lot easier to manage.
Rob Chaloner is the Founder and Managing Director of Stratton and is passionate about smarter ways to buy and finance cars. With Stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing, and insurance markets through smarter products and online services.