Consumer Car Loans
A consumer car loan is simply a personal loan to purchase the vehicle, using the car itself as the security. This loan type is very straightforward and is also commonly called a secured car loan, secured personal loan, a consumer loan or a car loan. Using the vehicle as security means that if the borrower doesn’t meet their obligations, including making the regular repayments, the lender may repossess the vehicle in order to sell it to recover their amount owing.
A novated lease is often a great way for salaried employees to purchase a new vehicle. Basically, it allows the finance to be paid using the pre-tax part of an employee’s salary. That maximizes spending power by using funds that would generally otherwise be lost as tax to pay the lease, and it also helps reduce the employee’s taxable income. A novated lease is a simple, three-way agreement between the employee, the employer and a financier. It’s easy to set up, it doesn’t impose a significant administrative burden on the employer, and it can even be packaged with a ‘fully maintained’ option to smooth out the operating costs.
A finance lease is a common loan type for vehicles used in business. The vehicle is actually purchased by the financier, and rented out to the borrower in monthly installments. This generally involves a fixed monthly lease payment and a residual amount payable at the end of the term. At the time of purchase, the borrower typically locates the vehicle at a dealership and negotiates a price in the conventional way – the subsequent finance arrangement is merely structured with the financier as the purchaser.
An operating lease is set up in the same way as a finance lease (above) but the borrower does not take on the obligation to pay the residual value. The vehicle itself is merely handed back to the financier at the end of the term of the lease. What this means is that the borrower does not have to worry about whether or not to pay out or re-finance the residual amount.
Commercial Hire Purchase
A commercial hire purchase (CHP) arrangement is a loan structure generally designed wholly (or predominantly) for business use. Essentially, you are hiring the vehicle from the financier, with the intent eventually to purchase it. The financier owns the vehicle from the outset, and the borrower repays the financier in monthly installments. In this way, ownership is eventually transferred to the borrower. However, the borrower does not fully own the vehicle until all the funds are paid in full under the terms of the contract.
A chattel mortgage is essentially a secured loan, using the vehicle as security, for vehicle used mainly for business. The main difference between a chattel mortgage and a consumer loan (above) is that a chattel mortgage is for predominately business use – which means the vehicle must be used 50 per cent or more for business. In most other respects the consumer loan and the chattel mortgage are similar; the financier lends you the funds and takes a mortgage over the vehicle, which means that you own the vehicle from purchase date.