Driving away with a good deal

Driving away with a good deal
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Are you ready to ditch the second-hand bomb you’ve been driving for a snazzy new car?

Buying a brand new car doesn’t come cheap and unless you’ve been diligently saving towards this goal, you will need to examine car loan options.

Like any loan, the first step is to calculate how much you can afford to repay based on your income and other expenses. Online calculators are handy for working out monthly repayments on different loan amounts and therefore a good starting point.

For example, borrowing $19,000 at an interest rate of 7.45 percent would translate to monthly repayments of $380 over five years before the car is yours. If you would like to own it sooner, in three years perhaps, the repayments would be $591 per month. It’s worth keeping in mind that the longer you take to pay off the loan, the more interest you pay.

Dealer finance

Signing up for finance through the dealership is a fast and convenient option. In fact, according to consumer group Choice, one third of people who buy a car from a dealer take up the dealer finance option.

However, the Australian Securities and Investments Commission (ASIC) warns on its MoneySmart website: “While dealer finance might seem convenient, it can be cheaper to get a loan elsewhere.” This is because dealer finance can often include unnecessary additional costs, such as loan protection insurance, an establishment fee, monthly fee or a dealer commission, so, like all financial products, it's important to read the fine print before singing on the dotted line.

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Car loans

There are two types of car loans. The first is a secured loan, where you use the car you are buying as security for the loan. If you fail to meet the repayments, the credit provider will repossess and sell the car. If it’s sold for less than you owe, you will have to pay the difference.

Unsecured car loans do not require the car as security against the loan. Instead you need to prove that you can meet the repayments by showing a history of savings or if you have previously had a loan or a credit card that you met the repayments.

Banks, credit unions, building societies and specialist lending companies all offer car loans, so do your homework and compare car loans before you go shopping for a car. On, you can research and compare a wide range of options.

Car lease

A car lease is like renting a car for a set period, which may range from two to five years. This may be an option through your employer or if you have your own business. Lease payments may be tax deductible if the car is used for business, so talk to your accountant or financial planner for more information.

However, the best lease option for a small business depends on your individual circumstances. Financial adviser Deborah Kent, owner of Integra Financial Services, recommended speaking to an accountant for advice on the best option. “A lot of people structure it wrong and don’t get the financial advantage they should,” she said.

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