How to Get a Car Loan in Australia

Regional car loans do not differentiate that much from global car loans - after all, the car financing mechanism that brings most to both lender and borrower is the one that is spreading worldwide, and with the globalization of the financing business has made interest rates and loan businesses pretty much universal. Like anywhere else, loans that you can pick up for the purpose of buying a car are the following: personal loans, credit card loans and leasing. However, Australia has one pretty much unique method of financing - Novated Lease. You may have heard about this particular phrase in the US or in the UK, but they don't mean the same thing - Novated Lease in Australia is a pretty much unique way for financing a car purchase, and one that brings great benefits to all sides involved. But I'm rushing ahead; let's quickly go through all of the loan types before we bite into the Novated Lease.

1. Personal loan

This is one of the riskiest types of loans, as you take on the entire financial burden of dealing with the bank, securing a personal loan and paying it back. Moderately high interest rates reflect the fact that this is an unsecured type of loan, although you can securitize it by offering up some high value asset as collateral - usually a home, for homeowners. This can reduce the interest rates significantly, but, while it does help in that aspect, it carries an inherent risk of losing your house if you start being late on your payments and if the bank decides that you are no longer creditworthy. Banks secure the money owed by selling your home on an auction, subtracting what you owe them and paying you back the rest - a deal that definitely does not work in your favor as the bank is under no obligation to find you the best deal possible.

2. Credit Card loan

Not much to say here, other than the fact that this is the easiest loan to secure, while being the most expensive one. Very high interest rates, with virtually no chances to bring them down will have you paying a lot of money until you're done with all of the payments. This type of loans should be avoided at all costs, unless you have a really high loan limit on your credit card and you are 140% sure you can pay them back.

3. Leasing

Leasing is a special plan for someone who doesn't need a car for an extended period of time, but still wants to have one ready at all times for him. It's a car financing plan where the lender does not end up with the product in the end. It's more like a form of borrowing a car, but with more affordable fees than what you'd be paying had you rented the car from a renting company. Several weeks to several months - these plans are very interesting usually to visitors who are staying for sufficient periods of time and need a car to use during their stay.

4. Novated lease

Now, this is a unique form of car financing that looks really good on both paper and in practice. Novated lease is a three way agreement between the employer, a lease company and an employee, where the employee gets the ownership of the car from the lease company while the employer reduces the base pay of the employee for the sum of monthly payment. While it may not look so interesting right away, there are a lot of benefits to this kind of arrangement. First, and most importantly - the monthly payment deduced from the employee's pay is not taxed as income! Second – the employee is a car owner during the duration of the lease, but he avoids all the taxes, including Goods and Services Taxes. The employee gets to pick from a bigger assortment of cars than if he had to pick one from a company's car fleet, and the employer doesn't have to maintain and manage a car fleet. There are other benefits depending on the size of the company involved - a number of company cars novated through this kind of arrangement can bring down the interest rates and monthly fees even lower.

All in all, with Australian Novated Lease everybody wins, and it's one of the most interesting original car financing options available, definitely worth looking at if you're an employee in Australia and if you're considering leasing a car.