There are many different car finance options available today including secured car finance, personal car loans, leases etc. But how do you know which one is right for you and your current circumstances? In this article, we will look at some of the most common car finance options available, weigh up the pros and cons of each and discuss in which situations each option would be suitable.

Secured Car Loans

A secured loan is where the finance company has security over your car. What this means for you is that if you were to stop making your payments or couldn’t repay the loan, the finance company has the right to repossess your car and sell it to recoup their losses. This may sound very daunting; however, this is one of the most common personal car finance options available. This is because financiers are able to offer some of the lowest interest rates available on both new and used cars under secured finance because their risk is lower with secured finance. In general, most people choose secured finance because of the low rates and affordable repayments.

Personal Car Loans

A personal car loan is simply a personal loan that is taken out for the purpose of purchasing a car. The difference between secured car finance and a personal loan is that with a personal loan, the finance company does not take security over your car. However, because there is more risk for the financier, interest rates on a personal loan are usually higher, therefore the amount of interest you pay over the duration of the loan will generally be higher.

People tend to choose personal loans to purchase older or classic vehicles where the financier won’t provide finance under a secured loan or if they want to purchase a vehicle and have access to additional money to install aftermarket parts or things that the financier wouldn’t usually include as part of a secured loan.

Novated Leases

A novated lease is an arrangement entered into by yourself, your employer and a finance company whereby your employer purchases a vehicle on your behalf. Your employer then pays for the vehicle lease and vehicle running costs on your behalf and allows you to pay off the vehicle as part of your salary package using a combination of your pre and post-tax earnings.

While Novated Leases can have many benefits for both yourself and your employer including huge tax benefits, it is important to make sure that you fully understand the implications of a novated lease before entering into one. Make sure you consider what would happen if you were to ceases working for the company, whether there is a balloon (residual) payment payable at the end of the lease term and whether you will likely incur Fringe Benefits Tax.

It is advisable that you speak to a financial advisor prior to choosing a Novated Lease as your vehicle finance option.

Should I redraw on my home loan or finance my car using my credit card?

It may seem tempting to redraw on your home loan to finance a car because of the low interest rates available on homes loans at present. However, be sure to read our article about why adding your car finance to your home loan might not be the best idea before making a decision.

It is also important to consider that if you put your car on your credit card that you may end up paying a whole lot more in interest over the life of your credit card, since credit card interest rates are usually quite high. You also don’t have a fixed term loan period on a credit card to ensure you pay your car off as soon as possible. This may result in you paying a much higher amount of interest on the purchase price of your vehicle than you otherwise would have with a fixed term loan option.

Still not sure which car finance option will suit your needs?

That’s ok, we’re here to help! Our specialist Finance Consultants are available to help find a car finance option that offers you affordable repayments and best suits your individual needs. Speak to your Loans For U Consultant today on 1800 538 287 for an obligation-free chat about your specific needs.