Car Finance

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What is Car Finance?

A car loan is a type of personal loan that lets you pay for your car in monthly instalments rather than upfront. 

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What is a car loan?

A car loan (sometimes called a vehicle loan) is a way for you to buy a car, van, ute, SUV, motorbike, or other road vehicles without paying for the entire cost of that vehicle upfront. It’s the most common type of car loan for a vehicle that’s used privately (not for business).

If you rarely use your car for business and your employer doesn’t offer a novated leasing program, an Auto Car Finance car loan is a sensible way to pay for your new vehicle. (If you expect to use your new vehicle for business purposes more than 50% of the time, a chattel mortgage may be more suitable).

Used car loans

A car loan is a type of personal loan that lets you pay for your car in monthly installments rather than upfront. You’ll take ownership of the vehicle at the time of purchase and will own it outright once your contract is complete.

Car loans are generally categorised into new car loans and used car loans and may be secured or unsecured.

What is a Finance Lease?

Your finance provider will buy the car, and you’ll repay them over the term of the lease. At the end of your lease term, the vehicle’s residual value will be due, giving you a few different options.

You can:

  • Buy the car yourself and pay the residual value to your lender;
  • Sell the car privately and pay the residual value to your lender;
  • Refinance the residual value and continue to use the car; or
  • Trade your vehicle in it in for the latest model with a new finance lease.

How does a finance lease work?

With a finance lease, your finance provider owns the asset throughout the lease term, but you benefit from its use.

One key feature of a finance lease is that you’re not committed to buying the asset at the end of the finance term – but you can if you want to.

Finance lease benefits

With an Auto Car Finance finance lease, you get the benefits of an asset without paying for it upfront – and you can choose to replace the asset or simply hand it back to your finance provider at the end of the lease term.

What is a chattel mortgage?

A chattel mortgage is a type of commercial car loan.

Intended for vehicles that are used for business purposes at least 50% of the time, chattel mortgages are popular with business owners as a way to own a vehicle outright while enjoying a range of tax benefits.

With a chattel mortgage, you own the vehicle from the time of purchase with your lender taking a mortgage over the vehicle as security for the loan. You’ll make regular payments to pay back the mortgage; once these are complete, the mortgage is removed, and the vehicle’s title will pass to you.

 

How does a chattel mortgage work?

Chattel mortgages have a similar structure to traditional secured car loans, but allow you to claim tax benefits including GST, interest charges and depreciation. Unlike other types of commercial car loans, with a chattel mortgage, you have ownership of the asset once it’s purchased and can use the income it produces to pay off the loan. The vehicle can also be treated as an asset on your balance sheet.

Business owners can finance up to 100% of the value of their new vehicle with a chattel mortgage, allowing you to save your working capital to fund growth. However, because your vehicle is held as security, your lender may be able to repossess it if you fall behind in your repayments.

 

Chattel mortgage benefits

With an Auto Car Finance chattel mortgage, you can use your working capital to fund the growth of your business, rather than your vehicles.

What is an Operating Lease?

An operating lease is a simple, cost-effective way to finance your company’s vehicles. Essentially a long-term rental agreement, operating leases are tax-deductible and allow you to always keep your fleet current.

How does an operating lease work?

An operating lease is similar to a rental agreement. Under the terms of an operating lease, Auto Car Finance owns the vehicle but allows you to use it exclusively for a period of between one and five years. You’ll make regular repayments throughout this lease term, but there’s no initial deposit required, and you’ll return the vehicle to us at the end of your lease with no more to pay.

An Auto Car Finance operating lease allows you to free up working capital by leasing rather than owning the asset. You also avoid residual value risk (also known as resale value risk) because the asset is returned to us at the end of your lease term. Our operating leases allow you to pay for most of your vehicle running costs in one monthly payment, making it easier to manage your cash flow and budget.

What is the residual value of a car?

When you lease a vehicle, the residual value is what that vehicle is worth at the end of the lease term. It’s a lump sum payment that’s due at the end of your finance lease, often referred to as a balloon payment.

Vehicles generally depreciate over time, with new cars losing value the fastest. Most new vehicles are worth 20-30% less than their sale price after the first year.

Cars lose their value over time for a few different reasons. General wear and tear will reduce the value of your vehicle, as will the manufacturer releasing a newer version of your car’s model.

What is a Residual Value (RV) or a Balloon Payment?

A residual value (RV) or a balloon payment is a lump payment due at the end of a loan, after paying smaller installments for an agreed term. It allows you to make regular monthly repayments on your vehicle, with the remaining balance due in one sum at the completion of your loan contract.

How is it calculated?

A residual value/balloon payment is calculated as a dollar value or percentage of your vehicle’s purchase price.

Example: You buy a new car with a $30,000 loan over 4 years with a 20% balloon payment of $6,000 due in one lump sum at the end of the loan term.

When you finance a vehicle under a novated lease, the residual value is what that vehicle is worth at the end of the lease term. It’s a lump sum payment that’s due at the end of your finance lease, often referred to as a balloon payment.

Vehicles generally depreciate over time, with new cars losing value the fastest. Most new vehicles are worth 20-30% less than their sale price after the first year.

Cars lose their value over time for a few different reasons. General wear and tear will reduce the value of your vehicle, as will the manufacturer releasing a newer version of your car’s model.

How is the residual value agreed for a novated lease?

Your residual value will be set in line with ATO (Australian Tax Office) guidelines and is usually expressed as a percentage of the amount financed.

 

Lease Term Minimum residual value
1 year 65.63%
2 year 56.25%
3 year 46.88%
4 year 37.50%
5 year 28.13%

When you enter into a finance lease, you accept the risk that the lender may achieve a sale price below the agreed residual value if you return the asset to them at the end of the lease term. In this scenario, you would be responsible for financing the shortfall between the agreed residual value and the current market value of the vehicle.

Contact Auto Car Finance today for more information about how a finance lease can keep you in the latest model and deliver compelling tax benefits.

What’s the benefit of a residual value (RV) or a balloon payment?

It makes your monthly installments smaller and more affordable as well as:

  • Improving your cash flow
  • Allowing you to borrow more so you can buy a higher-value vehicle
  • Aligning the loan principal repayments with the vehicle’s value over time

01

Structured to suit you

A chattel mortgage allows you to structure your loan to meet your needs. Repayments can be spread between 2 and 5 years, and you can generally pay your loan out early. You can also incorporate a balloon payment (also known as residual value payment) – a lump sum that must be paid at the end of the loan and allows you to reduce your repayments throughout the life of the loan. You can either pay out the residual value or refinance it if you want to hold onto the vehicle beyond the chattel mortgage term.

02

One easy monthly payment

A chattel mortgage allows you to include running costs such as fuel, maintenance, tyres, registration and insurance in your monthly repayments, meaning less administrative hassle for your business.

03

Finance up to 100% of your vehicle

A chattel mortgage allows you to finance 100% of your vehicle’s purchase price – or even more if you include costs such as insurance in the loan. This means you won’t need to dip into your working capital to fund your new car.

04

Tax deductible

Chattel mortgages allow you to claim a range of tax benefits. You can claim the GST component of the purchase price of your vehicle when you lodge your business activity statement (BAS). You can also claim fuel inp

01

New car loan

New car loans are for brand new cars; some lenders will allow you to finance a vehicle that is less than 3 years old with a new car loan. New car loans are usually secured by the value of your vehicle and offer a more competitive interest rate than used car loans.

02

One easy monthly payment

A chattel mortgage allows you to include running costs such as fuel, maintenance, tyres, registration and insurance in your monthly repayments, meaning less administrative hassle for your business.

03

Secured car loans

A secured loan means your lender has security over the asset you’re financing – in this case, your new car. With a secured loan, you’ll enjoy a lower interest rate – but your lender can repossess your vehicle if you default on your repayments to recover its money.

04

Unsecured car loans

If your car loan is unsecured, it means your lender doesn’t have any security over your asset. Because this is a riskier proposition for them, you’re likely to be charged a higher interest rate.

01

Car perks

A finance lease allows you to enjoy driving the latest model – and benefit from the new car warranty that comes with it. If having a new car is important to you, you can opt for a shorter lease term that will allow you to upgrade sooner.

02

Flexible finance terms

Finance leases generally run from 12 months to 5 years, giving you plenty of flexibility. If technology is rapidly transforming your industry, it may make sense to choose a shorter lease term for your key operating assets so that you can upgrade regularly. You can choose a longer lease term for your company vehicles if having the latest model is less important in this area of your business.

03

One easy monthly payment 

With a finance lease, you’ll know all your costs upfront, making it simple to manage your cash flow and budget. Depending on the structure of your lease, insurance payments and servicing costs can even be included in your fixed monthly payment.

04

Tax deductible

Chattel mortgages allow you to claim a range of tax benefits. You can claim the GST component of the purchase price of your vehicle when you lodge your business activity statement (BAS). You can also claim fuel inp

Frequently Asked Questions

What our clients want to know about.

Why would I buy a new car through Auto Car Finance?

At Auto Car Finance, we negotiate on your behalf to get a better car at a better price. As one of Australia’s largest car buyers, our market experience and knowledge of pricing, dealer margins and re-sale value ensure you’ll get a better deal.

What brands can I buy through Auto Car Finance?

We buy all makes and models, Australia-wide. We’ll ensure you get the best deal and arrange for your new car to be delivered to your door. If you’re not sure which new car is best for you, we can help you find ‘the one’ – from safety ratings to fuel efficiency, we know the market.

How much does the Auto Car Finance car buying service cost?

Our car buying service is completely free. We’ll source and purchase the car of your choice at no cost to you.

How do I know I’m getting the best price?

At Auto Car Finance, we request quotes from more than 10 major dealers to ensure you get a great deal.

Can I take my car for a test drive before I commit to buy?

Of course. Your Auto Car Finance consultant can organise test drives to help you arrive at a decision.

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