Finance Choices

This means the rate will remain the same for a set amount of time. This offers greater control over your finances because the repayment amount will always be the same for the fixed interest period.

The fixed interest rate and the time period it applies to must be stipulated in the credit contract. Generally you will not be able to make more than the agreed repayments (i.e. pay the loan off more quickly). Check the contract for any conditions that apply.
 

This means the rate will move up and down depending on the market.

This can (and does) affect your repayment amounts depending on which way the interest rate moves. If the interest rate moves up, your repayments will go up, if the rate moves down, your repayments will go down.
 

You may be able to choose to split the type of interest rate that applies to a loan. This can occur in two ways.

The first being a fixed interest rate for a set amount of time, and after that time elapses, the rate can be changed to a variable interest rate.

The second being that part of the amount borrowed has a fixed interest rate applied, and the remaining amount has a variable interest rate applied.
 

The total amount you pay to the lender will depend on the amount you borrow, the interest rate charged and the term of the loan.

Lenders will usually calculate interest charges on a daily basis. Multiplying the debt that you owe each day by the daily interest rate calculates the interest. These interest charges are usually added to your loan account each month.
 

An often convenient and simple solution to finance when buying a car through a car yard, this convenience can have several down sides.

Dealer finance will generally have a higher interest rate than competing finance options from other lenders, as well as often having large fees if you pay the loan out early.
 

Secured loans have an advantage in that you will generally benefit from lower interest rates and can often borrow a larger amount.

Disadvantages of a secured loan are that the car you are borrowing the money for is often the security on the loan, so if you don't make the repayments they can take the car from you.

Lenders may have more stringent minimum insurance requirements for the car, which often is Full Comprehensive insurance.
 

Unsecured personal loans have the advantage in that they are simpler to arrange than secured personal loans. All that needs to be confirmed is that you are able to make the repayments and that you are not a credit risk.

Disadvantages are that you are charged higher interest rates than secured loans, the amount you can borrow for a car will be less, and if you suddenly have trouble making the repayments and default on the loan, you can end up losing the car anyway and could possibly be forced to file for bankruptcy.

You generally do not have to get the same level of insurance as required by a secured personal loan or a car loan, however if you crash the car you'll be making payments for something you no longer have if you don't have insurance.
 

Hire Purchases are structured similarly to a Secured Personal Loan/Car Loan, but are targetted mainly at businesses. As it is secured finance, it allows lower interest rates.

Advantages of a Hire Purchase loan are that if the vehicle is used for business purposes you are able to claim GST and Input Tax Credits.

Typically at the end of a Hire Purchase loan there is a Balloon payment to be made to pay out the residual value of the vehicle after depreciation.
 

If you're currently paying off a mortgage, there is the possibility to use the equity in the home to get finance for a car.

This has the advantage of all your repayments for both house and car being one, so you only have to budget for the repayments on the one loan instead of having to make repayments on both the car and the house each month.
 

Leasing is another type of finance that may suit people who regularly trade-in their car. In a lease arrangement where there is no obligation to buy the car, the ownership stays with the lender and the car is returned at the end of the lease term.

During the term of the lease you are responsible for making the lease repayments and for the cars running and maintenance costs. Repayments for the lease are based on the difference between the cars sale price and what it is estimated to be worth at the end of the lease.

There can be benefits associated with tax and GST if the car is for business use.

After the lease period expires you often have the option to buy the car for its residual value, much like in a Hire Purchase loan.
 

An increasingly popular method of financing car purchases is a Balloon Loan. You pay reduced monthly installments for the term of the loan, with a large final payment ("Balloon Payment") that clears the debt.

Consumers will have a number of options available in dealing with the balloon payment, namely paying the full amount, re-financing or rolling over into another credit product.

Some companies, such as car dealerships, may provide balloon loans that offer a guaranteed buy-back price on your vehicle. Consumers should make sure they are aware of the conditions attached to these arrangements.

Consumer leases are often provided in the form of a balloon loan.