Getting to school every day doesn’t have to be a chore – we can all cruise to the classroom in a new set of wheels. Like most big purchases, we’ll need to take out finance. In fact, 90% of all new cars are financed in some way in Australia, according to findings from the Financial Services Royal Commission conducted in 2019. What are the options for teachers to get behind the wheel of a new car?
The traditional car loan
The traditional or consumer car loan is the predominant way teachers finance their new car. These loans usually have a five-year term and monthly repayments. They’re mostly fixed rate loans which means you can use a car loan calculator and estimate how much you can afford to pay each month – the repayments will stay the same. Bill Tsouvalas, Savvy Managing Director and car finance expert says that going to a broker can mean savings in terms of competitive interest rates. “A broker will save you time and money as they can find a loan from many lenders instead of just going to your bank, who might fob you off with an unsecured personal loan which can be quite dearer than secured loans specialised for financing cars.”
Leasing doesn’t let you own a car, but instead give you access to a car for a set period – usually two to five years. Bill says that leasing is for people who want the latest and greatest and don’t want to worry about paying for maintenance and registration. “You get to use a new car for a couple of years and all the servicing and rego is included in the monthly payment,” he says. “The only downside is that you don’t get to truly own the car – and you have to keep it in good condition before the finance company asks for it back at the end.”
Novated leasing is another popular option to finance a car – you won’t have to make repayments out of your post-tax income; instead, it’s taken from your pre-tax income and in many cases, the “repayments” will bump you down into a lower tax bracket, so you pay less in tax overall. This is a three-way agreement between you, your employer, and a car finance company. You’ll need to check with your employer if they offer this type of salary sacrificing. At the end of the lease however, you’ll need to come up with a residual value payment. You can either sell the car to cover it, pay it out yourself and keep the car, or hand back the car and start another lease.
Self-employed? – there are tax deductible options
If you’re self-employed you could be eligible to take out a chattel mortgage or hire purchase. The car must be for over 50% business use to qualify. There are numerous tax advantages, such as writing part or all of the cost off using the instant asset write-off, claiming GST paid, interest, depreciation, and the fuel input tax credit. “Businesses opt for chattel mortgages because they can finance more than the value of the car, which means they can pay off rego and insurance over time too. You can also incorporate a balloon payment in the loan too.”
Other options out there
Like mortgages, you can lock in fixed or variable rate loans; the latter means your repayments could go up and down depending on fluctuations in the RBA cash rate. Secured car loans are the norm, but if you have excellent credit, you may qualify for an unsecured car loan. This means your car is not collateral for the loan, but you will pay more in interest as a result.
Remember to ask for help from a financial professional before making a decision.