Choosing the right car loan option for you

Navigating the options to finance your new car may seem a daunting proposition. Do you choose a lease? Or a personal loan? Or dealer finance?

The Australian Securities and Investment Commission’s MoneySmart recommends shopping around to determine which option is right for you, including investigating the costs, features and benefits of each choice.

Like anything else in life, if you spend your time researching and planning, you are better positioned to secure the outcome that best meets your needs.

Six common ways to meet the costs of your new vehicle include:

Pay cash

If you are a saver, and have enough of a balance to meet the needs of any emergency, then a cash purchase may be the choice that’s right for you.

A key benefit is that you will have no debt repayments to worry about over a number of years, meaning you can return your focus to savings.

Other considerations include whether the vehicle you are buying will be used as part of your work requirements (meaning there may be a taxation write-off opportunity) and whether you have a proven credit history.

Loans and repayment histories will help build your credit rating for financing large purchases, such as property.

A secured car loan

A secured loan means you are committing an asset as security for a loan. Generally, when financing a vehicle that vehicle is then used as the security.

These types of loans often have a lower interest rate than unsecured loans and may be offered on a variable or fixed interest rates.

A variable rate may initially seem more attractive (however is at risk of market interest rate fluctuations) and the structure allows for extra repayments.

A fixed rate loan offers you the confidence of knowing your payment amounts will remain constant; however, in many circumstances penalties apply for early repayments.

Unsecured loan

This type of loan is used to buy a vehicle; however, you do not provide security against the finance.

This means the interest rates are generally higher because the lender is carrying a higher level of risk.

Generally, these loans are available for between 12 months and seven years and those with a good credit history and rating are generally better positioned to apply for finance of this type.

Novated lease

Novated leasing is an option that offers lower repayments and may also bundle the vehicle running costs such as registration, insurance, servicing and fuel.

Commonly offered for three to six years, a novated lease is directed through your employer.

A financing arrangement of this type may increase your net disposable income (take home pay) as opposed to other kinds of financing arrangements you'll pay less income tax because your tax rate is calculated on your reduced salary after the leasing costs are deducted.

Be aware that in choosing a novated lease you will need to pay a lump sum–sometimes close to 50% of the original value of the vehicle–at the completion of the contract.

Dealer finance

It’s the epitome of convenience. On negotiating the right vehicle at the car yard the dealer then works to secure your finance.

In these circumstances the dealership brokers the finance, with the debt on-sold to a financial institution.

It may seem like a seamless process, but the arrangement may come with higher interest rates, account fees and early repayment penalties. If this is an option you are considering it is recommended that you shop around and work to negotiate the best deal.

Adding on to your mortgage

If you have the equity in your home loan you may be able to draw down on your mortgage and add your vehicle purchase into your regular mortgage repayments, securing a low interest rate to finance your purchase.

This approach may secure a lower interest rate, however may have a longer term interest cost if you do not take steps to boost your mortgage payments.

Which option is right for you? It comes down to your individual circumstances. Investigate the options–including benefits and restrictions–and calculate the cost with each choice.

Questions you should ask include:

• What are the establishment and ongoing fees?
• Is there a penalty for extra or early repayments?
• How much will I be paying in total over the life of the loan?
• Is there a balloon payment (i.e. a payment at the end of the financing period)?
• How much will I owe at the end of the contract (in the case of leasing arrangements)?

Looking for the best fit for your new car loan?

Since 1964, UniBank has been focused on offering good value and a broad range of competitive products to employees, students and graduates in the university sector.

If you are a current or retired tertiary employee, a graduate, post-graduate or current student at an Australian university- and citizen or permanent resident, or a family member of an existing member of the bank, - you can join the Bank.

UniBank car loans¹ have no ongoing fees and have features including the ability to make extra payments and no penalties for early repayments. You can also finance accessories such as car navigation systems, insurance and security within your loan amount.

Please note – Before you decide on any of our products or services, we strongly recommend that you read both the Conditions of use Accounts and access and Fees and Charges booklets online or at any of our offices. We have not considered your objectives, financial situation or needs. For further information call 1800 864 864.