Types of car loans on offer through AAA Finance
There are different types of car loan options depending on if you want to use the car for personal or business use. AAA Finance are the experts in all the different types of car loans. Our job is to make sure that you get the right type of car loan to match your specific situation.
1. Types of Consumer Car Loans – for wage earners and self-employed individuals buying an asset for personal use.
- Secured car loan
- Personal car loan
2. Types of Business Car Loans / Chattel Mortgages - for ABN holders buying a car for business use.
1. Types of Consumer Car Loans
What is a consumer?
A consumer is someone who works for wages, either full time, part time or casually. It could also be a self-employed individual buying a car, camper trailer or other asset for personal use. In this case, the individual’s payslips or personal tax return would be used as proof of income.
Secured Car Loan
As the name suggests, a secured car loan uses the item being purchased as security against the loan. Using the car as security reduces the risk to the lender. For example, say a person has a $30,000 secured car loan and is months behind on loan repayments. The lender can repossess the car and sell it at an auction house. They will hopefully recover sufficient funds that will allow them to finalise the loan with any additional funds being returned to the loan applicant. A secured car loan gives lenders the ability to recoup funds if the loan goes into default. The reduction in risk to the lender results in them being able to offer a much more competitive interest rate. Secured car loans start in the 4%’s.
Personal Car Loan / Personal Loan
A personal car loan is also known as an unsecured car loan or unsecured personal loan. The car or item being purchased is not used as security against the loan. Therefore, this type of car loan is deemed a higher risk to the lender due to the lack of security. If the customer goes into arrears and can no longer make the loan repayments, there is no asset for the lender to collect and dispose of to recoup their money. Consequently, the interest rate is higher than that of a secured car loan. For applicants with a strong profile, personal loan rates are still quite competitive, starting in the 6-7% mark. Conversely, for the 22-year-old casual worker with no credit history the interest rate would be much higher, probably in the mid-teens.
There are several reasons why you would need to use a personal loan to buy a car.
1. When the vehicle does not value. An older car may have a tonne of accessories that you are happy to pay a premium price for. However, lenders will not take those accessories into account, so they will deem it as overpriced. It could also be because the car has hail damage and is listed as a repairable write off. Lenders will not finance repairable write-offs under a secured car loan structure.
2. When purchasing an older motor vehicle. The age of the car may make it outside lending criteria. Cars are deemed less and less acceptable as security for a loan the older they get. For example, a personal car loan is how someone would by an old Datsun 180B that they have wanted for the last 40 years - the perfect father and son restoration project.
3. When purchasing an unregistered motor vehicle. Lenders will not finance an unregistered motor vehicle using that vehicle as security.
4. When you want to have cash in the bank, so you are ready to buy the right car when it comes along. When a personal loan is finalised and settles, funds are transferred straight into the customers bank account. These funds can then be used, effectively as cash, to purchase a motor vehicle or other items.
The beauty of a personal loan is in its flexibility. A personal loan is not attached to any specific item or car.
2. Types of Business Car Finance
Business car loans are also known as chattel mortgages. What is a chattel mortgage? A chattel is an asset i.e. car, ute, motor bike, truck, excavator and a mortgage is a loan secured by that asset – hence the name chattel mortgage.
With business vehicle finance, the applicant must have a current ABN. That ABN can either be a sole trader, a partnership, a proprietary limited company, or a family trust. The ABN must be running for a minimum of 12 months and may be required to be GST registered.
The other requirement for this type of loan is that the vehicle is used ‘predominately’ for business use. Predominately is defined as over 50% of the time. What defines busines use? The asset has to be predominantly used by the business for income generating activities. A tradie driving his tool laden ute to job sites to perform work is income generating. Whereas an accountant driving to work would only be able to claim the proportion of business that they do after they arrive at work to go and see customers outside the office. Travel to and from home to work is not classed as business use. Chances are that the accountant would not be able to claim a significant proportion of the vehicle use as business related.
However, if you have transformed your vehicle into a mobile advertising billboard with your business logo it can be classed as 100% business use. AAA Finance has arranged chattel mortgage finance for a business who logoed an Indian motorbike for promotional purposes, a 1970 model London Cab for a real estate company and a jet ski for a graphics company, to name a few.
No Doc and Low Doc Car Loans
Not every business keeps on top of their books and does their tax returns on time every year. Even if a business is on top of their financials quite often business tax returns are not due until months after the end of financial year. Most organisation do not want to complete their tax return early because they have tax to pay. They are better of utilising those funds to help run and grow their business. When it becomes due, they pay their tax debt. A no doc or low doc car loan negates the need for a current completed tax return.
No Doc Car Loan
A no doc car loan requires no documentation to secure funds for an asset purchase. It does however often require a declaration stating gross turnover and net profit and that they have the ability to repay the monthly repayment amount. The lending criteria to qualify for a no doc car loan includes having an ABN running for a number of years, be GST registered for a number of years and be asset backed. If you meet this requirement, many lenders will offer a loan with nil deposit. If you are not asset backed, some lenders may request a deposit of 10%-20%.
Low Doc Car Loan
A low doc car loan requires some form of documentation as proof of income. This may in the form of a profit and loss statement, balance sheet, BAS and/or previous year’s tax return. Depending on the complexity of the structure of your business, reports from your accounting software such as MYOB or XERO may suffice, or account prepared financials may be required.
Full doc car loan
A full doc chattel mortgage is where full financials are used to prove income. Profit and loss statement, balance sheet and quite often the company or sole traders tax return are required. The same interest rate will be achieved whether utilising the no doc, low doc or full doc option.
AAA Finance | Experience and a focus on customer service
AAA Finance has over 95 years combined finance experience. We are the experts in all types of car loans. As experienced finance brokers our job is to assess each client’s profile and determine what car finance type will best suit the client AND get them the lowest interest rate available. Experience the AAA difference today and call 07 5493 1222 to find out how we can help you drive away!
AAA Finance can arrange a pre-approved car loan. A pre-approved car loan gives you peace of mind that your funds are approved before you begin looking for a car. All you have to do is find a car that suits.
If you want to know if your loan repayments will fit within your budget you can use our car loan calculator tool. Simply input the loan amount, term of the loan and an interest rate and our calculator will tell you what your fortnightly or monthly repayments will be.
About the author
Peter Watman has extensive finance and automotive experience having worked in both industries for over 30 years. Peter founded AAA Finance and Insurance in 2012. He leads an experienced team that provides quick and easy finance solutions along with exceptional customer service.