It’s not as exciting as shopping for a BMW, but shopping around for a car loan is an important step if you are looking to finance a luxury vehicle. Luxury car loans can help you purchase cars up to $100,000, and depending on the loan you choose the interest rate can be quite competitive. A luxury car is not a last-minute purchase and how you finance your luxury car should be given the same amount of consideration as your new vehicle. Take a look at your financing options below and learn how to compare car loans before you choose a lender.
What are luxury car loans?
Loan options for luxury vehicles work in much the same way as regular car loans except that they are for larger amounts. Luxury cars can cost you anywhere upwards of $40,000, and a loan of that size is a serious undertaking. Luxury car loans can come as a fixed or variable rate option and secured or unsecured. There are also options for business car loans.
Luxury Car Loans
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Types of luxury car loans
- Secured car loans. If you are looking to finance a luxury car, a secured car loan will most likely be able to offer you comparatively lower interest rates. This is because these loans will use the car as a guarantee in case you default on your loan. Although this is a risk for you, if you budget your repayments and don’t buy a car that’s beyond your means you can take advantage of the low interest rates and fees that come with secured loans. These loans usually base the amount you receive on the value of the car, and you are normally required to use the entire loan amount to finance the car purchase.
- Unsecured car loans. This type of loan does not require you to use your car as a guarantee and as such usually comes with higher rates and fees. An unsecured loan, however, might be an option if the luxury car you’re buying is second-hand, as you normally cannot use a second-hand car as a guarantee. Unsecured loans also offer longer loan terms, usually up to seven years, and are also more flexible in how you use the loan.
- Business car loans. Some people purchase luxury cars for their business, and if this is the case there are loans that are designed specifically for you. Business car loans may offer repayments structured around your business’ cash flow and sometimes require no deposit, allowing you to keep money in your business for longer.
- Chattel mortgage. This type of loan refers to a business car loan for self-employed people. The loan works in much the same way as a secured car loan as your vehicle is used as security, which means lower rates. These loans also allow you to opt for a ‘balloon payment’ at the end of your loan term, which is a set percentage of your principal loan amount and can help to reduce your ongoing repayments.
- Dealer finance. Most dealers, including luxury car dealers, will offer a financing option when you purchase a vehicle. These loans usually come with a set interest rate and regular repayments, ending with a large ‘balloon payment’ at the end of the loan term which is a certain percentage of the principal. These financing deals are usually offered when you are at the dealership, which gives you little time to compare the offer to other loans on the market. It may be a good option to do some research beforehand so you don’t sign up for a loan only to realise later on you could’ve gotten a better deal.
Luxury Car Tax: what you need to know
The Luxury Car Tax (LCT) is payable on any car that is deemed by the government to be of ‘luxury’ status, which is usually above $50,000. You are required to pay LCT if you are registered, or required to be registered for, the GST, and you import or sell a luxury car. This tax is applicable to retailers, wholesalers, manufacturers and other businesses, or if you are an individual and you import a luxury car.
At the time of writing, the threshold for this tax is as follows:
- $75,375 for fuel-efficient cars. Fuel-efficient cars are defined as cars with a fuel consumption of seven litres per 100 kilometres or less.
- $60,316 for other cars.
How to compare luxury car loans
- Variable or fixed rate. Luxury car loans usually come as a fixed or variable rate option. A variable rate is more of a gamble as the interest rate can increase and decrease during the loan term, which also makes it hard to budget for. A fixed rate loan allows you to lock in a specific rate for the life of the loan, although this may mean you miss out on lower rates down the track.
- Loan term. Loan terms vary between lenders, but generally you are able to borrow for between one and five years for a fixed rate loan or between one and seven years for a variable rate loan. Shorter loan terms will help to save you money in interest, but this will also mean higher monthly repayments.
- Fees. You should familiarise yourself with all fees that you may be charged before you apply for the loan. This includes upfront and ongoing account-keeping fees, including fees you may be charged for extra features such as making additional repayments.
- Repayments. Before you apply for a loan you should check the repayment options offered by the lender. Usually, you will be able to select your repayment frequency so you’re able to match it up with your pay frequency, and you may also have the option to make additional repayments.
- Flexibility. You should also check how flexible the lender will be over the course of the loan. For example, will you be able to pay back the loan early, or are you able to extend the loan terms? This loan could be with you for a few years, so you want to ensure it’s as accommodating as possible.
Things to consider
As outlined above, you will also need to incorporate the Luxury Car Tax into the cost for the car. Some lenders may let you include this in your loan amount as it has to do with the purchase of your car and is included by some sellers in the actual price of the car. If you are looking to finance a luxury vehicle you should seriously consider whether this is financially responsible and whether you are actually able to afford it.
If you are borrowing a significant proportion of the purchase price then you may want to consider opting for a cheaper car, or to save up more finance in order to reduce your repayments. This is especially true if your income is unsteady because you are self-employed or your income comes from investments.
Car financing through your dealership is also an option, but again, you’ll need to compare the costs, repayments and interest to determine if you’re getting the best deal.
How to apply
If you’d like to apply for a luxury car loan you can compare your options above. Once you’ve chosen a loan, click ‘Go to Site’ to be taken through to the lender’s website. Generally, you will need to be over the age of 18, be a permanent Australian resident and have a good credit rating to apply. You will also need to provide the following:
- Proof of identity
- Personal details including name and age
- Financial details including your assets, credits, debts and liabilities
- Employment details including income and your employer’s name and contact information
- Business details if the car is being purchased by a business
- Details of the car including make, model, condition and price
Start your luxury car loan comparison
