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Car Loans Explained.

Car Loans - lease versus loans - Lifestyle and Personal Priorities make the difference.

When buying a car to finance, it is important that you select a vehicle that fits your budget and provide as much deposit as possible. Nothing else you do will have more effect on your chances of approval, it could improve your offer, and will reduce your monthly payment.

Factors affecting your Car Finance Offer

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To get the best car financing offer, you should select a vehicle that fits your budget and then provide as much down payment as possible. These two factors alone may increase your likelihood of approval, improve your offer, and reduce your monthly payment.

Factors affecting your monthly payment

Your monthly payment is determined by three major factors listed below in order of impact

Which is better, lease or loan finance?

Your choice as to whether to finance your car by a lease or a loan will depend largely on your personal priorities and lifestyle and so car lease-versus-loan finance decisions must be made with your own lifestyle and priorities in mind.

Lease:

A car lease is good you if you enjoy driving a new car every three or four years or so with the latest gadgets and safety features, like a properly maintained vehicle mostly under warranty, enjoy lower monthly re-payments but are willing to pay more over the long term to get these benefits. To get the most of the benefits you will have a stable predictable lifestyle, drive an average number of miles annually and don't care about building ownership equity. You will need to understand how leasing works, and the features of the particular leasing product you are considering.

Loan Finance:

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Loan finance typically has higher monthly payments and allows you to build equity or trade-in financial advice for car loanvalue in your vehicle. Once out of warranty you will have to pay the cost of maintenance and repair yourself. A loan option also allows you to customise your car as you see fit from time to time, and usually gives you the option of paying it out sooner that the agreed term, if you wish. A loan will not have a balloon payment at the end of the term, as in a lease.

Secured or Unsecured? 

Loans come is essentially two types: a secured loan (often called a car loan) or unsecured loan (often called a personal loan). A secured loan or car loan is when the lender retains an interest in the car or other asset as security until you have repaid all of the money you borrowed. An unsecured loan is when the lender has no security for the loan. If you default on a secured loan, the lender takes the asset securing the loan - usually the car. If you default on an unsecured loan, the lender will pursue you directly and take legal action against you for repayment of the loan. Either way, your default will be recorded on your credit file. Unsecured loans are often more expensive than secured loans and will have a higher Annual Percentage Rate.

Personal Property Securities Register (PPSR)

The PPSR national register will let you check that the used goods you are buying, like a car, boat or machinery - almost anything except real estate - doesn’t have a security interest over it. It also provides additional protection for businesses that lease or supply goods, in the event that a debtor defaults or goes bankrupt.

ASIC has produced a good guide to car loans and insurance "In the Drivers Seat" and we recommend reading this before you enter into a finance agreement. 

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