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Finding a Car Finance Option that is Best for You

So you've made the decision to buy a new car and the next decision you need to make is what type of car finance is best for you. You've probably heard some car loan jargon being thrown around such as novated leases, finance leases, balloons, hire purchase and residuals but what do they all mean?

The most common car finance option taken these days is still the good old car loan, also known as hire purchase, personal loan or consumer loan. The term of car loans is usually between one and five years. Once the term is determined, the interest rate is calculated based on the risk and monthly repayments enable you to pay out the total amount by the end of the term.

Balloon Payments

A balloon payment is a final lump sum that is attached to a loan and usually applied at the end of a loan period. For example, lets say you borrow $40000 and elect a $10000 balloon payment. Firstly, your monthly repayments will be reduced and when you reach the end of the term, you decide whether to pay out the $10000 or continue paying monthly instalments. Some people choose to sell their vehicle, pay off the balloon amount and then purchase a new car.

Car Leases

There are two types of car leases: Finance Leases and Novated Leases.

Finance Leases

A finance lease is where the financier has full ownership of the vehicle, while the customer uses the vehicle and has the benefits of ownership. The customer makes fixed monthly rental payments for the term of the lease. At the end of the lease, the customer has the options of taking ownership of the car by paying a final instalment, trading in the vehicle or they can refinance the residual payment and continue the lease.

Novated Leases

Novated leases allow you to include a car as part of your salary package. The benefit of this is that you will reduce your taxable income. A standard finance lease is taken out, however this time the repayments are made by your employer. The lease payments, any costs associated with running the car and fringe benefits tax are deducted from your pre-tax salary.

Lend4Cars has a handy Car Loan Calculator that can help you determine your monthly or fortnightly car loan repayments. You can try it out here:

Alternatively, to discuss the car finance option that would be best for you, please give one of our friendly Lend4Cars consultants a call on 1300 856 846.