The usual method of buying a car and financing it with a car loan is the de facto standard to get behind the wheels of a new automobile. But does that appeal to you? You have to make repayments for five years, are responsible for servicing, insurance, and maintenance, and you’re stuck with a depreciating asset which you’ll struggle to sell after the loan is paid off. If that doesn’t appeal to you, here are some creative options for financing a new car – some of which have some pleasant upsides!
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Are you a business? Consider chattel mortgages
If you have an ABN and intend to use a vehicle for over 50% of business use, you could be eligible for a business-oriented loan called a chattel mortgage. Businesses that opt for chattel mortgages are eligible for a number of tax breaks, including as depreciation up to the depreciation cap, interest paid, and GST paid on the vehicle. You can also include balloon payments, longer or shorter terms, and borrow more than the purchase price of the car to pay off rego, insurance, and other extras over time. Of course, this is suitable for business owners or the self-employed. Talk to a broker to see if you’re eligible.
Leasing a car
If you prefer to have a new car and not have to fuss about with servicing and maintenance costs, a lease may be best for you. You gain use of a car for set period (usually two years) and make lease payments which includes most associated expenses. Depending on whether if you take out an operating lease or finance lease, you can return the vehicle at the end of the lease, purchase the car for the residual value, or take out a new lease with a new vehicle. Of course, there may be mileage restrictions and you cannot make any modifications to the car.
Save on tax with novated leasing
Novated leasing is a popular method of getting use of a car while reducing your tax obligations. The leasing option works like this: it’s a three-party contract that your company, a lender, and you as an employee enter into to purchase a vehicle under lease. The company assumes repayments on your behalf, with the amount taken out of one’s pre-tax income. You also don’t have to worry about out-of-pocket maintenance and rego costs, either. At the end, you can purchase the vehicle by paying the residual or sell the vehicle to pay the residual and begin another lease.
Can you rent to own?
There is an option to rent to own, which is suitable for people with impaired or no credit history. Much like a lease, you pay a rent in exchange for use of the vehicle. At some point, you may have paid enough in rent to own the vehicle outright or pay out the residual. You may need to pay security deposit upfront and keep the car in good condition throughout the rental period. If you need to stop rental of the vehicle for any reason, you will forfeit any of the money paid toward ownership. This can be slightly more expensive than leasing (there are no credit checks involved) but may be suitable for temporary residents or labour-hire workers.
If you are ever unsure, consult a financial adviser to point you in the right direction.
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