Buying a car involves more than choosing the make, model and colour. Before signing a purchase contract or applying for finance, it is worth considering how the vehicle will be purchased, how much you want to borrow and how the loan should be structured.
The right car finance options will depend on your circumstances and the vehicle you are buying. A dealer purchase may be handled differently from a private sale, while your deposit, balloon payment and intended vehicle use can all influence the lenders and loan structures available.
Here are four decisions to consider before financing your next car.
1. Are You Buying from a Dealer or a Private Seller?
Buying through a licensed dealership and buying from a private seller can involve different finance processes.
Buying from a dealership
A dealer will generally be able to provide the vehicle invoice, registration details, vehicle identification number and payment instructions required by the lender.
The dealership may also offer finance at the point of sale. While this can be convenient, it is still worth comparing the proposed rate, fees, loan term and total amount repayable with other car finance options before signing.
Do not assume the lowest advertised repayment is automatically the cheapest loan.
Buying through a private sale
Private-sale finance may involve additional checks and documentation. Depending on the lender, you may need to provide:
- The seller’s identification and bank details
- Proof that the seller owns the vehicle
- A signed purchase agreement
- Registration information
- The vehicle identification number, or VIN
- An inspection or valuation
- Evidence that any existing finance will be paid out
Before buying a used vehicle privately, you should also complete a PPSR used car search. A PPSR search can identify whether a security interest is recorded against the vehicle and may also provide information about whether it has been reported stolen or written off.
The vehicle’s age, kilometres, condition and market value can also influence whether a lender is prepared to accept it as security.
Before handing over a deposit or signing an unconditional agreement, check that the vehicle meets the proposed lender’s criteria.
2. Will You Use a Deposit or Borrow the Full Amount?
A deposit reduces the amount you need to finance.
For example, if a vehicle costs $50,000 and you contribute a $10,000 deposit, you may only need to borrow the remaining $40,000, excluding any fees or additional purchase costs.
Using a deposit may help you:
- Reduce the amount borrowed
- Lower your regular repayments
- Reduce the total interest paid
- Improve the loan-to-value position
- Access a wider range of lenders
- Reduce the risk of owing more than the car is worth
However, contributing a deposit also means using money that could otherwise remain in your savings or business cash flow.
Can you get car finance without a deposit?
No-deposit car finance may be available, depending on the applicant, vehicle and lender.
A lender may consider factors such as:
- Your income and employment
- Existing debts and living expenses
- Credit history
- Stability of residence and employment
- The vehicle’s age and value
- Whether additional costs are being financed
- Whether the vehicle is for personal or business use
For business owners, retaining cash may be important for wages, stock, equipment, tax obligations and other operating expenses. In that situation, financing a larger portion of the vehicle may help preserve working capital.
The decision should balance the repayment you can comfortably manage against the amount of cash you want to retain.
3. Will You Repay the Loan in Full or Use a Balloon Payment?
A standard car loan is generally structured so that the borrowed amount is repaid through regular repayments over the agreed loan term.
Another option may be to include a balloon payment, sometimes called a residual payment.
A balloon is a larger amount left owing at the end of the loan. Because part of the principal is deferred, the regular weekly, fortnightly or monthly repayments may be lower.
At the end of the term, you may need to:
- Pay the balloon from your savings
- Refinance the remaining amount
- Sell the vehicle
- Trade in the vehicle
- Use the sale proceeds to clear the loan
Does a balloon make the car loan cheaper?
A balloon can reduce your regular repayment, but it does not reduce the purchase price of the vehicle.
Because part of the loan remains outstanding for longer, you may pay more interest over the life of the finance. You will also need a realistic plan for dealing with the final payment.
Do not assume that the vehicle will automatically be worth enough to cover the balloon. Its future value can be affected by:
- Age
- Kilometres travelled
- Mechanical condition
- Accident history
- Market demand
- New model releases
- Changes in electric or fuel-powered vehicle demand
A balloon may suit someone prioritising short-term cash flow, but paying the loan down completely may suit someone who wants to own the car outright at the end of the term.
For further information about balloon payments, fees and comparison rates, see Moneysmart’s car loan guide.
4. Will the Vehicle Be Used Personally or for Work?
The intended use of the vehicle can affect which car finance options are appropriate.
Personal vehicle use
Personal use may include:
- Driving to and from your usual workplace
- School drop-offs
- Shopping and everyday transport
- Family travel
- Recreational use
A personal-use vehicle may be financed through a secured car loan or, depending on the circumstances, an unsecured personal loan.
You can read more about LoanBrix’s personal loan options, including the differences between secured and unsecured finance.
Business or work use
Business use may include:
- Travelling between job sites
- Carrying tools or equipment
- Making deliveries
- Visiting customers
- Transporting stock
- Operating a rideshare or transport service
- Adding a vehicle to a business fleet
A business vehicle may be financed using a commercial car loan or another asset finance structure.
The application requirements can vary depending on the business, applicant and lender. A self-employed borrower may be asked to provide documents such as:
- An active ABN
- Business bank statements
- Business Activity Statements
- Tax returns
- Financial statements
- Evidence of business income
- An accountant’s letter
Some lenders may also offer streamlined or low-documentation options for eligible established businesses.
LoanBrix assists with commercial and business finance for cars, utes, vans, trucks, equipment and other business assets. Specific options are also available for tradies seeking car or ute finance.
Tax treatment can depend on the borrower, business structure and percentage of business use. Speak with a qualified accountant or tax adviser before relying on any potential deduction or tax benefit.
Other Car Finance Options to Compare
The four post-it note questions help determine the overall structure, but there are other loan features worth comparing.
Secured or unsecured finance
With a secured car loan, the vehicle is generally used as security for the debt. If the borrower fails to meet the repayments, the lender may be able to repossess and sell the vehicle.
An unsecured loan does not use the vehicle as security. However, it may have a higher interest rate because the lender is taking on more risk.
Fixed or variable interest rate
A fixed rate generally provides consistent repayments for the agreed fixed period.
A variable rate may change during the loan term. It may also provide greater repayment flexibility, depending on the lender and product.
Loan term
A longer loan term can lower the regular repayment, but it may increase the total interest paid.
A shorter term generally results in higher repayments but may reduce the overall finance cost.
Fees and repayment conditions
Before selecting a loan, review:
- Application or establishment fees
- Monthly account fees
- Broker or introducer fees
- Missed-payment fees
- Early repayment fees
- Extra repayment restrictions
- Balloon or residual amounts
- The total amount repayable
For more guidance, see our article on three car finance tips to consider before buying your next car.
Choosing the Right Car Finance Structure
There is no single structure that suits every buyer.
Suitable car finance options will depend on your:
- Income and expenses
- Existing debts
- Credit history
- Deposit
- Employment or business circumstances
- Chosen vehicle
- Intended use
- Preferred repayment
- Plans for the end of the loan term
A finance broker can help compare available lenders, explain different structures and show how changes to the deposit, term or balloon may affect both repayments and total cost.
Watch Trevor Explain the Four Decisions
Car finance can involve more choices than borrowers initially expect.
In the video below, Trevor uses four coloured post-it notes to explain the key questions you should consider:
- Green: Dealer or private sale?
- Blue: Deposit or no deposit?
- Red: Pay the loan in full or include a balloon?
- Yellow: Personal or work use?
These four decisions provide a useful starting point for comparing car finance options before committing to a vehicle.
Speak to LoanBrix About Your Car Finance Options
Before purchasing your next car, consider more than the advertised interest rate or weekly repayment.
Whether you are buying from a dealership or private seller, using a deposit or borrowing the full purchase price, selecting a balloon or paying the loan down completely, each decision can influence the loan structure available.
LoanBrix can help you compare car finance options for personal, work and business vehicles and understand the proposed structure before you commit.
Contact LoanBrix to discuss finance for your next vehicle.
