Car Loans Made Easy

Everything You Need To Know About Guaranteed Future Value

So, you’ve found your dream car and the dealer offers you a way to guarantee the future value of your car. On paper, it sounds like a great idea. I mean, who doesn’t want to slow the process of depreciation? But, before you sign the dotted line to opt into Guaranteed Future Value, make sure you are aware of what it entails.

Understanding Guaranteed Future Value (GFV)

You can find loads of resources detailing what Guaranteed Future Value is, but essentially, it is a sales tactic that tries to manage your fear of depreciation when buying a new car, especially when your finance contract has a balloon payment (i.e. a large final repayment at the end of the finance contract).

When a Guaranteed Future Value contract is made, the dealer will offer a minimum trade-in value, provided that certain conditions are met. These may include:

  • Maximum kilometres on the vehicle
  • Wear and tear
  • Residual amount owing on the loan

How does it work?

Guaranteed Value Financing is an alternative to traditional purchase financing or leasing. You can use this option to take advantage of a lower monthly payment.

You purchase the vehicle and finance it using a Guaranteed Value Financing contract. The term of your finance contract is 60 months (5 years) but it is amortized over 84 months (7 years). This allows you to have a lower monthly payment. Your payment schedule is structured using a consecutive monthly payment for the 60 months (5 years) and a balloon payment at the end of your contract (which is the amount remaining on the loan). At the end of the contract term, you have 3 options for paying the balloon payment.

  • Refinance the outstanding balance
  • Purchase the vehicle by paying the outstanding balance
  • Trade the vehicle in towards the lease or purchase of a new vehicle

Who is this really benefiting?

Mainly, Guaranteed Future Value puts the dealership in the driver seat [pun intended]. When you are getting ready to sell your car, it “forces” you back to the dealership to get best resale price, giving you less choice. If you choose not to trade-in, you will be stuck with a significant balance left to pay out your loan.

What do you really need to know?

Like any important decisions in your life, take the time to review all your options before you sign up for Guaranteed Future Value. This may include being aware of the following:

  • It will shrink your market when you are ready to sell this car.
  • If you are on balloon finance and opt to sell it through another dealership, you might end up needing additional funds to assist with negative equity, due to the size of your balloon payment being more than the market value of your car at the time.
  • Often you are tied to using the dealership’s workshop for ongoing maintenance of the car.
  • Usually Guaranteed Future Value will come with an expiry date (sunset clause). This means the offer is only valid until a certain date, forcing you to upgrade earlier.

To understand depreciation of cars over time, a good independent resource is Red Book. This can help you negotiate realistic balloon payments on your finance.

This is where having an experienced finance broker can help you access a variety of tailored finance options. So, if you are in the market for a new set of wheels, or upgrading your current ones, contact our team at cash.com.au today. Our application process is 100% online and comes FREE of any obligations.

man reading newspaper on bench

Business Bulletin #1

by cash.com.au

 

Welcome to the first Cash.com.au business bulletin. We are passionate about bringing you the news that affects your business in the industries that keep Australia moving. We’ll be keeping you up to date with the economic stories of the week as they develop and letting you know how we can help steer your business through these turbulent times. This week we’ll be focusing on three of the nations biggest industries: Transport, agriculture and construction.

 

Transport

Amid the coronavirus epidemic Australia’s transport industry are essential in keeping the country moving. Affecting the transport industry this week are increased inspections in NSW and news of a proposed income smoothing scheme.

truck driving under the cloudy sky
NSW police will be ramping up inspections over the next few weeks

NSW police double up on truck compliance blitz

The NSW police are ramping up the inspection of heavy vehicles, with 175 trucks stopped at the Pine Creek Heavy Vehicle Inspection Station this week. Amongst the checks included:

  • 100 random drug tests, resulting in three positive tests
  • 140 infringements for work diary, load restraints and fail to enter
  • Six fatigue charges
  • 25 engine control module downloads with three instances of non-compliance, resulting in defects issued.

NSW police noted that the majority of heavy vehicle drivers were complying with fatigue and vehicle standards.

ALRTA calls for income smoothing scheme

The recent economic downturn has called for the induction of an “income smoothing scheme” for truck drivers – similar to the Farm Management Deposit Scheme available to primary producers. Under the FMDS, primary producers can make tax-deductible deposits in ‘good years’ that can be withdrawn and taxed in later years.

ALRTA believes that a similar scheme for the Rural Transport industry could similarly assist eligible road transport businesses become more resilient, reducing need for direct government assistance.

Given that the proposal is largely based on the existing FMDS, it might be possible to make provisions for a small-scale pilot in the 2020-21 Federal Budget.

 

Agriculture

The biggest news to affect the AG industry now are the rising trade tensions with China. Earlier this week China announced that they will cease buying Australian beef as well as new tariffs on Barley.

Australian cattle prices
Australian beef may be destined for other markets following the ban on imports from China

Beef with China

Amid calls for an enquiry into the origins of the Coronavirus China has announced that it has banned the import of beef from four major Australian Beef producers.

The ban follows breaches in export protocols and are similar to a ban that occurred in July 2017 – making the link between coronavirus enquiry and the bans debatable.

Conspiracies aside – what does it actually mean for the beef industry?

It could mean to a loss of jobs in the long term, while in the short-term beef producers will be looking for new markets for their beef.

For primary producers it means they may need to hold their stock that is currently ready to slaughter. If the ban persists a drop in beef prices could inflict a further blow to the industry.

Barley Tax

China has also announced an 80% tariff on Australian Barley in response to cheap Australian barley hurting their domestic market.

For Australian farmers this makes it unviable to sell their barley to the Chinese market. Since the announcement of the tariff the price of barley has dropped 20 – 30 %

This puts barley producers in a similar position to beef producers. Either cop the lower prices or fid a new market.

Meanwhile, the local availability of cheap barley could see it replacing wheat as the food of choice in feedlots.

 

Construction

This week the effects of coronavirus are still dominating the headlines.  The coronavirus pandemic has slowed growth in the private sector, calling for government action to stimulate the industry with public projects

construction cranes against a blue sky
The construction industry is calling for government intervention

Commercial construction sector set to face decline

In the wake up the coronavirus pandemic, the commercial construction sector is looking to decline by 15.7% in 20/21 and 11.5% in 21/22. The lockdown has decimated private sector demand and demand is not predicted to rise as restrictions ease.

Master builders is calling for government action to develop a COVID19 action plan for the building and construction industry to address the looming crisis. On recommendation is to bring forward maintenance on government buildings.

Some experts are calling for an increase in social housing development. This will have a  two-fold effect for Australians – it will help ease rental pressure for low income Australians as well as stimulate the local jobs market. The taller a building gets the more demand for imported components. Therefore, a focus on single or double storey dwellings will be most beneficial for local industries.

Victorian government to stimulate construction industry

The Victorian government has announced a $2.7 billion Building Works blitz that is predicted to create 3700 jobs. The package will provide jobs for painters, plasterers, gardeners, plumbers, electricians, carpenters and more.

At the core of the package is a $1.18 billion investment into education infrastructure

Recyclable “archimats” to revolutionise construction industry

Researchers from Monash University are pioneering a breakthrough recyclable material whose many applications have the potential to revolutionise the construction industry.

Archimats are ‘architectured’ materials that have an organised intertwined or interlocking inner architecture that can be engineered to have superior strength, a high tolerance to damage and good thermal insulation compared with other conventional composite materials such as concrete.

Its proposed uses include:

  • In the construction industry to reduce the use of concrete and cut carbon dioxide emissions associated with its production;
  • To build or rebuild in arid or disaster-affected zones. This includes rapidly deployable and removable structures in danger areas, such as a town or city impacted by fire, for first responders and displaced citizens;
  • In extra-terrestrial and space construction. The European Space Agency is already considering this type of architectured material for the construction of a lunar base; and
  • In smart toys and games, such as 2D and 3D puzzles.

A further benefit of archimats is the ease of assembly and disassembly it provides a structure, as well as the nearly full recyclability of the elements involved.

 

Our brokers are specialists in the transport, agriculture and construction industries. If you are looking for a loan to grow your business, drop us a line and find out how we can help find the right finance for you

Apply Now 

 

bank statement fees

The Hidden Cost of Business Finance

There is a reason for the saying “always read the fine print.” Often when seeking finance, the figure people pay the most attention to is the interest rate. To most people this is the defining mark of quality in any finance contract. While it’s certainly one of the things that is addressed when negotiating finance on behalf of my clients, it is not the only factor in determining the overall value of a loan.

Interest Rates – why are they so important?

The reason that interest rates are commonly a primary focus in finance is the fact that every finance contract has one, and at first glance the numbers are easily measured against each other. A small difference in interest rates on a large loan will make all the difference in the size of the repayments, but it may not be the only factor in the value of the loan.

OK, so what else do I need to consider?

Although the interest rate is important and always needs to be addressed there are many other factors to consider. You may want to consider the term of the loan, frequency of repayments, any extra upfront fees as well as ongoing monthly fees. Another factor that may affect the affordability of your loan is whether it is to be secured against an asset or unsecured.

Secured vs Unsecured

Many lenders will offer the option of securing a loan against an asset to allow you to borrow a larger amount or obtain a better rate. The benefit of having a secured business loan is that you can often get a better rate. The downside is that you have the risk of losing your assets if you cannot afford to repay the loan. Unsecured loans however will come with lower loan amounts and higher rates as they are considered more of a risk by the lender.

Hidden Fees to look out for

Many loans have a plethora of hidden fees, some charged as a one-off upfront fee, and others as a recurring monthly fee.

Here is a summary of the hidden fees that may be included in a finance contract:

  • Application fee

    putting together an application costs the lender time, and they will often pass these costs on in the way of an application fee. May also be known as establishment fee or start-up fee.

  • Origination fee

    An origination fee is similar to an application fee in that the lender is trying to recover the costs of packaging a loan offer. This could be a flat fee or a percentage of your loan.

  • Documentation fee

    This is the fee for creating the documents related to your loan. This may include the cost of retrieving official or government documents.

  • Maintenance fees

    Some lenders may charge a fee to cover the administrative costs of keeping the loan open. This can add up to a considerable cost over the life of the loan.

  • Banking and payment fees

    These could include fees incurred from direct debits, late payment fees or dishonour fees

  • Prepayment/break fees

    Also known as exit fees, settlement fees or early termination fees, these are charged when you pay your loan early. Some lenders will charge you for paying off the loan early to counter the money they will be losing on interest over the term of your loan.

  • Fixed rate lock in fee

    A lender may charge a fee to lock the loan in at a certain interest rate to protect the loan from market fluctuations. This will also keep the interest rate at a higher rate if overall rate goes down.

  • External fees

    Also known as third party fees, these are incurred when a lender chooses to pass on costs associated with procuring the loan, such as appraisals.

Case Study

Let’s take a closer look and compare two different loans:

  • Finance company A charges an annual interest rate of 12% with no other fees at all associated with the finance contract.
  • Finance company B charges an interest rate of 10.5% but with a $600 upfront documentation fee, a $900 admin fee and $30 monthly recurring fee.

In the following table we compare two loans from these companies’ using a loan amount of $10,000 and $100,000

Company A

Company B Company A

Company B

Loan Amount

10,000

10,000 100,000

100,000

Interest Rate

12%pa

10.5%pa 12%pa

10.5%pa

Loan Term

5 years

5 years 10 years

10 years

Monthly Direct Debit Fee

0

1.99 0

1.99

Monthly Account Maintenance Fee

0

30 0

30

Upfront Documentation Fee

0

600 0

600

Upfront Administration Fee

0

900 0

900

Principle

10,000

11,500 100,000

101,500

Monthly Repayment

223

248 1,435

1,370

Total Repayable

13,380

14,196 172,200

164,400

Total Recurring Fees Charged

0

1919.4 0

3838.8

Grand Total Paid

13,380

16,115.4 172,200

168,238.8

Difference

2,735.4

3,961.2

 

As you can see, for the smaller loan amount, the loan from company A is better, because although it has a higher interest rate the lack of extra fees make it better value overall. With this in mind, I’m sure you can see the contract with the higher rate would be a better option for the client in this scenario.

However, for the larger loan, the higher fees are negated by the lower overall interest rate.

Let us do the walking for you  

I’m sure you can see now why it is important to have an expert fully understand the ins and outs of any finance contract you enter into. Just because you get the best interest rate doesn’t necessarily mean you have the best deal.

At Cash.com.au we have worked for various banks, finance companies, and fintechs.  This ensures we know their respective credit policies which allows us to approach the right lender to secure the funding you need to grow your business.

If you want to get in touch with us to learn more or discuss your business requirements please contact our Broker Manager Ben Murphy ben@cash.com.au or call on 0408815839

Cash.com.au Broker Advice

3 Reasons You Should Use A Broker

  1. We understand finance companies
    A lot of people think it’s cheaper and quicker to apply for funding directly through a finance company or bank.  However, unless you have spent years researching each and every available option, the chances of getting the best deal for yourself are pretty slim.  It’s worth knowing that different finance companies have different risk appetites and risk silos they like to operate in. For example, certain commercial finance companies will not lend over a certain amount to companies associated with the construction industry.
    Now they won’t ever advertise this or make it public knowledge, but its important information to know if attempting to borrow money from them.
  2. It’s the best use of your time
    By using a broker you only have one point of contact. Often we hear from clients who have had to tell their story and supply their documents to two or three different people within the same finance company,  only to have their application declined.  They then go away and start the process with another finance company. This can be time-consuming and frustrating.   By using a broker, you supply the information once  and they will handle the various departments across the finance companies they are dealing with.  As an added bonus the broker also knows exactly what information the finance company wants to see, so they can package and present the loan to the finance company to get the most favorable outcome for their client with the least amount of stress.
  3. Cost, cost, cost
    When we borrow money we want to do it as cheaply as we can.  A lot of people think adding an extra person in the process of acquiring a loan may stop them from getting the very best available deal.  However, by using a good broker the complete opposite is true.  Often finance companies advertise on rate and rate alone, for example, “get a loan today for 5.9%” now off the bat this may seem like an attractive offer, but is that an advertised rate or a comparison rate?
    What are the establishment fees involved?
    Are their certain criteria you need to meet to qualify for that rate?
    Are their monthly fees charged in relation to the loan?
    What term is required to secure this favorable rate?

    By working with a broker, you can map out different loan scenarios using different lenders and ensure you are getting the best deal for your current situation.

Apply for finance today.
Competitive rates from 6.99%

For more details and other reasons you should be using a broker, read this interesting article.