Car Broker Loans

Is there a difference between a Car Loan and a Personal Loan?

Whether you are out to buy a car or just curious, have you ever wondered about differences between a Car Loan and a Personal Loan? When you read about Personal Loan, they usually claim to be “for any purpose”. So why does one need a car loan?

What Are The Main Differences?

Car Loan Personal Loan
Restrictions Must be spent on car purchase For any reason (incl. buying a car)
Security/Collateral Required Secured against your car Secured or Unsecured
Credit Rating Medium/Bad Credit will suffice Usually required good credit
Buying new or used car Mostly for new cars Mostly for used cars
Amount borrowed Covers only the car value Borrow any amount
Interests Rates More competitive (car as security) Tend to be higher

Car or Personal Loan

Where can you get a Vehicle Finance vs. Personal Loan?

You can get both Vehicle Loan and Personal Loan from any financial institution like banks or other lenders. In addition to that, Vehicle Finance are also offered by car dealerships. So you can directly finance your car from the dealership you but it from.

How much can you borrow for a car?

In most cases, you can borrow up to 100% of the value of your car as part of your auto finance. Since your car will be used as a security for your loan, deposit is not required. However, it is always a good idea to have 20% deposit, if your financial situation allows for it.

So now that you know the basics, how do you choose?

The answer depends on your personal and financial situation.

  • If you are purchasing a secondhand car, it will usually be cheaper. However, it is better to get a personal loan to fund a secondhand car, because lenders may not want to fund an older car.
  • If you have bad credit, you are more likely to get approved for a car loan because technically you do not fully own your car until the final payment. So, if you default on your payments, the lender can repossess your car to recover any leftover debt.
  • If you are planning to do any enhancements or modifications on the car, a personal loan may cover the cost of the vehicle as well as the modifications, compared to a car loan.

What’s the bottom line?

Buying a car (or anything for that matter) is stressful enough. So, leave the sorting out of the finances to the experts. At cash.com.au we have a team of expert brokers that will guide you through the minefield of borrowing and will find you the best solution to suit your individual requirement.

Applying for a loan with cash.com.au is also simple, 100% online and FREE, so Apply Now and being in the experts.

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.

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