Car and asset finance: what to consider before choosing a loan

Start with the amount you actually need to finance

The amount financed may be different from the purchase price.

It can be affected by:

• your deposit;
• trade-in value;
• whether fees are added to the finance;
• any existing finance being paid out;
• the type of asset being purchased.

A lower amount financed will generally reduce both the regular repayment and the total interest paid.

Compare more than the advertised repayment

A low repayment can look attractive, but it does not always mean the finance is cheaper overall.

When comparing options, consider:

• interest rate;
• repayment amount;
• finance term;
• establishment or account fees;
• balloon or residual amount;
• total amount repaid.

Our Car / Asset Finance Repayment Calculator can help you see how these figures interact.

Understand the effect of a balloon or residual

A balloon or residual is an amount left owing at the end of the finance term.

It can reduce the regular repayment because less principal is repaid during the term.

However, the balloon still needs to be:

• paid from your own funds;
• refinanced;
• or dealt with through the sale or trade-in of the asset.

A larger balloon may also result in more interest being paid over the term.

The finance term matters

A longer term can reduce the regular repayment, but it may increase the total amount of interest paid.

A shorter term generally means higher repayments but can reduce the overall financing cost.

The term should suit both your budget and how long you expect to keep or use the asset.

The asset can affect lender options

Lenders may consider factors such as:

• whether the asset is new or used;
• the age of the asset;
• purchase price;
• whether it is being bought privately or from a dealer;
• whether the borrower is an individual or business;
• intended use of the asset.

Different lenders can apply different rules.

Business use can add another layer

Where a vehicle or piece of equipment is being purchased for business purposes, the structure may involve additional considerations.

These may include:

• business cashflow;
• trading history;
• ownership structure;
• GST treatment;
• accounting and tax implications.

Morbanx can assist with credit and finance options, but borrowers should obtain appropriate tax or accounting advice where required.