Two Wheels – Why Not?

Personal Finance

Thursday, 26 January 2012 07:14

Now that January is nearly over and most of us have had our summer holidays and are getting our work heads back on again, it might be time to review your transport and travel options for 2012.  But instead of getting out a loan to buy a car, why not get out a loan to buy a motorbike?

Most people think about motorbikes as being more for fun than for transport – it’s the whole biker thing.  But not every motorbike is a Harley Davidson and the original purpose of a motorbike was to get from one place to another quickly and easily.  And this original purpose hasn’t changed.  In these days of high petrol prices, a motorbike might be ideal as your only form of transport or as a second “car”.

Of course, before you apply for a motorbike loan, you need to make sure of a few things.  First of all, does a motorbike fit your circumstances?  For obvious reasons, if you have a family or if you need to take a lot of gear around the place, a motorbike won’t be the vehicle for you.  However, if you just need a set of wheels to take you to work or to pick up a few groceries (and we’re talking a couple of loaves of bread and a bottle of milk here, not a 10-kg sack of potatoes), a motorbike could well do the trick.  And, of course, if you like the idea of hitting the road for the weekend, a motorbike has a level of fun that a car can’t offer.

As well as the fun factor, motorbikes have a lot to offer, whether you are considering a larger cruiser or a nippy little motor scooter.  They’re usually more frugal on fuel, which is certainly a good thing if you’re in the process of applying for a loan and setting a budget.  It’s also good for the environment.  They are usually easier to find a park for, as they’re smaller.  Some institutions have space for motorbike parking that enables about four bikes to be parked in the space that would otherwise be taken up by a car – and these motorbike parks often don’t incur charges for parking.  In some places, motorbikes are permitted to go places that are usually reserved for buses or cars with more than one person, usually because they’re smaller and more nimble than most cars, and they don’t contribute as much to traffic congestion. 

Businesses could also do well to consider motorbikes for their company fleet, especially if your business involves delivering documents and other small items where speed counts.  The motorbike courier is part of the modern business world and offers good value for money because of the fuel economy.  There’s no reason why a motorbike couldn’t be added to your company fleet, either as an asset or as part of a novated lease agreement.

Another thing to consider when you apply for a motorbike loan is the licence.  You do need a separate motorbike licence to ride a motorbike, even though the road rules are the same whether you have four wheels or two.  Motorbike riding involves a different set of skills.  As with a car, you have to have a provisional licence for a time, and you have to comply with these conditions, which include the engine size.  Check the rules for your State/Territory before you start choosing your motorbike and thinking about loans.

And you also need to have the right safety equipment.  This means, at minimum, a helmet, but can (and probably should) include a jacket and trousers with protective padding, and possibly proper motorbike boots.  Good ones aren’t cheap, so you might like to talk to us about whether you are able to include the price of purchasing safety equipment in the amount you borrow, along with the motorbike loan proper.

Managing The Budget Over Christmas

Personal Finance

Thursday, 08 December 2011 07:42

Christmas is a-coming, and it’s one of those things that you have to factor in when you’re working with a budget... and you should be working with a budget if you are considering taking out a loan for a car, bike or boat (yes, even if you are buying said car, boat or bike as a Christmas present!). 

Often, when people first calculate a budget to see what sort of weekly payments can be managed for your loan repayment, they can overlook events like Christmas and birthdays, which do require a little extra expenditure.  And then that time of year comes around and the pressure can start coming on.  It can be tempting to overspend and possibly max out your credit cards in order to have the “perfect” Christmas.

However, if you cut through the hype and are smart, then you can avoid blowing your budget over this time of year and facing the choice between defaulting on a loan repayment – with all the nasty hassle that comes with this – or eating baked beans for a fortnight.  (If it gets to that level, choose the baked beans.  They’re good for you as well as being ultra-cheap, and it’s easier to repair the social damage caused by blowing off than the credit damage caused by blowing your credit).

First of all, remember that Christmas doesn’t have to be “perfect” as defined by advertisers and movies.  You don’t need a huge turkey or ham for Christmas dinner, plus all the heavy food of a Northern Hemisphere Christmas.  In Australia, we’re lucky enough to be able to have Christmas in the veggie growing season, so make the most of cheap seasonal veggies or even home grown veggies and built your Christmas dinner around that, with the meat being a sideshow.

And presents don’t have to be the biggest, best, flashest and most fashionable.  It’s a cliché, but it really is the thought that counts.  Try home-made treats and gifts if you’re good with your hands (sweets, jam, biscuits, cake, photo frames, etc...) or vouchers offering your services (washing cars, mowing lawns, babysitting, weeding, cleaning) that can be redeemed throughout the year.  Or set a maximum limit and see what you can find for under a certain price – it’s amazing what you can find if you use your imagination.

Other tips to help you fit Christmas into your budget are:

• Join a Christmas hamper scheme or voucher scheme through your local supermarket – this does trim down the food budget.
• Buy presents bit by bit through the year rather than in one big hit.  This spreads the cost out, allowing you to fit present shopping around your repayments.  October and November can be good times to start. (Oops – bit late for that one now!)
• Buy presents for families as a group rather than individuals.  This is especially good if you have masses of relatives.
• Make your own Christmas cards – after all, you can get enough pictures of Christmas-related stuff on the catalogues that pour through the letterbox to provide plenty of collage material.
• Make a pact with the members of your family that the presents will be bought in the New Year/Boxing Day sales when all the excess stock in shops gets sold off cheap.  Don’t go mad, though – again, set a maximum limit and stick to it.  Use cash and leave the credit card at home if you’re likely to give into temptation.

Just What Is A Novated Lease, Anyway?

Salary Packaging

Wednesday, 30 November 2011 14:26

One of the things that we talk about quite a bit here at Fincar car finance is a novated lease.  If you’ve never heard of a novated lease before (possibly because you’ve only recently come to live in Australia), the mention of these things possibly leaves you scratching your head.  You look at the dictionary: it’s not in some versions.  Maybe you look at the word “novated” and try to figure it out from the root words in it.  Is it something to do with innovation?  Something to do with renovation?  Certainly, there’s that “nova” bit that comes from the Latin word meaning “new”.

A novated lease is something that seems to be unique to Australia – although something with the same name happens in the UK, apparently – and is one of those things that comes as part of a salary package and is negotiated in a contract with your employer.  If you can get one, your employer probably told you all about one when you got the job.  So if you’re interested in getting a new car and you’re just in a beginning job, then a novated lease isn’t for you and you should probably look at some other option.

In plain English, a novated lease is where the company you work for leases a vehicle on your behalf.  The payments for that leased vehicle come out of your pay package before tax.  However, before you get all excited about not having to pay tax on the chunk that comes out to pay for that novated lease, these leases do attract fringe benefit tax.  On the other hand, you don’t have to pay as much GST on the vehicle – your employer will be able to handle (and claim back) some of this tax.  And because a large company can often get a better deal because of volume, you can get a better deal on the car.  Another benefit for you is that if you have to change jobs, you can take the car (and the novated lease) with you, in some cases (although, if your old job saw you driving around in a trade van, you might not want to take it with you if you change careers to an office job – this is something that will have to be discussed with your bosses, old and new).

The advantages of a novated lease for the employer are that the employee shoulders more of the risk involved in driving a lease vehicle – the employer faces less risk than they do when they have a fleet of company cars.  Also, if your boss wants to reward all your hard work and increase your salary but the bean-counters in Accounts say that a plain raise isn’t quite doable, the novated lease has the same effect: giving you more without stretching the company’s budget too much.

An Australian novated lease is quite different from what they mean by “novated lease” in the UK.  Over there, a novated lease is just an ordinary lease that has been transferred from one person to another, with the consent of the lessor, of course.  It’s got nothing to do with your pay packet or company cars. 

If you’re new to Australia – maybe you’re a new immigrant from the UK – and want to know more about how novated leases work here Down Under, talk to us and ask us any questions so you know how it all works.

How To Avoid Shylock

Personal Finance

Wednesday, 09 November 2011 08:32

Shylock, for those of you who aren’t familiar with Shakespeare’s play The Merchant of Venice, was a moneylender who charges one of the main characters (Antonio, the merchant of the title) in the drama one of the most outrageous penalties for defaulting on a loan: the terms of the loan – which was voluntarily signed and agreed to by Antonio – allowed Shylock to cut a pound of flesh off Antonio... without anaesthetics, which hadn’t been invented when Shakespeare was writing, unless you count very strong alcohol or opium.  And you can guess what happens:  Antonio defaults on the loan when he gets the news that one of his trading ships has been wrecked at sea, and Shylock hauls him into court with a knife ready to do the business, and it takes some very cunning legal work by Portia, the heroine of the play who disguises herself as a man so she can act as a lawyer, to get Antonio off the hook.

Shylock was the Renaissance version of a loan-shark: someone who charges a very high rate of interest so people with bad credit ratings can take out a loan.  Loan sharks – although you won’t hear them advertising themselves this way – are now more common and more acceptable to society than they used to be (only just).  In Shakespeare’s day and before that, the practice of charging very high interest rates was known as “usury” and it was considered to be among the most atrocious of moral crimes.  Dante, who wrote before Shakespeare, in his classic Inferno, put usurers (we’d call them loan sharks) in the seventh circle of Hell at the same moral level as murderers and perverts. 

And if you’ve ever talked to anyone who has taken out a loan with a loan shark, you’ll understand why society in days gone by cast them as villains.  Some people who have failed to read the fine print and/or have felt so desperate that they’ve taken out a loan from one of these unscrupulous lenders would agree completely – and are likely to consider hacking off half a kilo of muscle to be a better situation than watching their family suffer in an attempt to pay the loan off.

You should always be suspicious about people or companies who offer loans on very easy terms.  It is highly likely that there will be exorbitant hidden charges and/or penalties.  These people are often considered by people who haven’t got a stellar credit history.  How can you avoid Shylocks but still get the money you need to buy a set of wheels (so you can get to your job so you can earn the money to pay off the loan and still have something left over to live on)?  Is there a way?

The first thing to do is to look at your credit history carefully.  Sometimes, the printouts can be wrong or out of date.  A debt may be in dispute or you may have already paid it off, and this isn’t shown on the “bit of paper”.  If you can sort this out and clarify what’s going on, then you may be able to clear your name on the credit front.

The next thing you can try doing if you do have outstanding debts or unpaid bills that are damaging your credit rating is to do what you can to pay them off.  This may mean that you have to trim your lifestyle back a bit – cut that credit card up if you find that you can’t help yourself running up big bills with it! 

If the problem is well and truly in the past – perhaps the bad rating is a legacy of being young and stupid many years ago – then having the paperwork, such as bank statements and budgets can be used to show lenders that you have learned how to manage your money properly and you are unlikely to default on a loan again.  Another possibility is to save up and have a large deposit handy, which not only means that you’re borrowing less but also shows the lender that you’re able to save money.

And, most obvious of all, try applying to a different lender.  If you’ve always gone to the same lending organisation and they know that you have a tendency to get yourself into problems, then a new lender might be more favourable towards you, especially if you take some of the other steps listed above.  Talk to us and we’ll help you find a new lender that suits your situation – and we’ll help you with the fine print so you don’t end up paying a pound of flesh. 

More borrowing and lending terms for absolute beginners

Personal Finance

Wednesday, 26 October 2011 06:57

In the last post, we introduced beginners to the world of car finance to a few of the terms that get used when you start looking for a loan to buy your car.  After all, those who are looking for their first car are quite likely to need a loan to purchase that car – usually so they can go to work to earn the money that will be needed to pay off the car (and hopefully have a bit left over to pay for other expenses).  Here’s a few more borrowing and lending terms explained for those new to the process (Those who know how it works but need a loan to get a new car because their old one has blown up can skip this post and get on with the job of applying for a loan and finding a new car.)

Loan Calculator:  These are handy little gadgets provided by many lending companies to help you work out whether you can pay off the loan comfortably or not.  It’s a sort of budgeting tool, and it takes the number-crunching burden off your back – just in case you can’t remember how compound interest works even though you know you had to calculate it in class, or if you’ve handed that scientific calculator you used for doing these sums to your little sister.  With a loan calculator, you can work out what the repayments will be like (and therefore whether you can manage them) with various interest rates, terms (see below for a definition of this) and amounts to be borrowed.  You can get started by trying out our loan calculator here. 

Deposit:  This is the amount you pay up front towards the cost of the car.  If you read the last post about interest rates, you probably have realised that the more you can pay towards the car outright at the start, the better, as this will mean that you pay less interest, because you won’t have to borrow as much.  The exact amount that you need for a deposit varies.  Some lending companies will approve your loan with no deposit or only a tiny deposit, while other companies prefer you to pay a bit more up front.  Naturally, this will affect the interest rates they will offer you, so be aware. 

Term:  Term refers to how long you will be paying off the loan and the interest – the amount of time it will take until it’s all settled and the car is 100% yours.  The term is usually something that can be negotiated with the finance company, but the general rule of thumb is the longer the term, the lower the monthly repayments.  However, with a longer term, you will also pay more interest overall, so it’s a juggling act.  A short term, less interest and a large monthly repayment?  Or a longer term, more interest and more manageable monthly repayments?  It will really depend on your circumstances.  Also be aware that most car finance companies won’t accept terms longer than ten years, given the way that cars deteriorate and lose their value over time.

Repayments:  This is the amount that you will be forking out every month or every fortnight.  How often you want to make the repayments is something you will have to negotiate with the finance company, but most companies are usually OK with either monthly or fortnightly repayments.  You could try doing weekly repayments, but this will depend on your budget and how you get paid.  Regarding repayments, one thing that it pays to ask when you’re applying for the loan is whether you can make additional payments on top of the regular repayment amount so you can pay the loan off sooner, and whether there’s any fee for early repayments.

If you have any other questions about loans and car finance, don’t hesitate to ask us.  It’s important that you understand what you’re letting yourself in for when you take out a loan, so don’t feel like a twit if you ask questions.  That’s one of the things we’re here for.

Borrowing and lending terms for absolute beginners

Personal Finance

Tuesday, 04 October 2011 06:15

Some of the people who use our services to find a good car loan aren’t old hands at the game of borrowing and lending.  For many people, leaving school and getting a job is often what triggers the need for a car – you need to get to work, don’t you, especially if that job is in a place or time that just doesn’t work for the other El Cheapo options such as walking, bussing, carpooling or biking.  And unless you can get a bit of dough off Mum and Dad, you’re probably going to have to borrow some money so you can buy a car (or a motorbike – another worthy option that’s a bit more frugal on petrol and is a good way to get about for those who don’t have to cart a family around) so you can get to work to earn some money – which you will need for paying back what you borrowed to get the vehicle.

However, if you’re new to the world of borrowing and loans, some of the terms might be a bit unfamiliar.  This glossary might help you start off and might also help you avoid a few traps for the unwary beginner.

Principal: The principal is the amount that you’re borrowing. This is usually the price of the car, but it pays to ask a few questions just in case there are a few extra charges here and there – often, there’s an administration or application fee associated with applying for the loan (the employees of lending companies have to eat...).

Compound interest: Compound interest is not just something you have to calculate in maths class.  In case you were asleep during that class and just went through the motions, compound interest works like this.  Just say that you borrow $1000 at an interest rate of 10% per annum (per annum = per year).  The interest calculated the first time round will be $100, which is 10% of $1000.  The next time that the interest is calculated, it will be 10% of ($1000 + $100 = $1100), which is $110.  This assumes, of course, that you haven’t made any repayments.  Generally when the interest at Time B is calculated, it will be 10% of principal + interest calculated at Time A – any repayments.  It doesn’t take a maths whizz to work out that the amount you have to pay back keeps growing and growing, so the more repayments you make and the quicker you pay back your loan, the less you will pay in the long run.

Bailiff: This is something you want to avoid.  If you don’t manage to make your repayments, the inevitable will happen.  Remember how annoyed you got when someone borrowed your favourite CD but never gave it back?  Well, this is how the loan companies get when you don’t pay them back the money you borrowed to buy that car.  And they will send someone to get that vehicle off you, as it was paid for with their money, after all.  This person is the bailiff.  The car will probably be sold by them and this money will go towards what you owe them.  You still might have to keep making payments, too, and your credit history (like a report card on what you’re like when it comes to paying back loans) will have a black mark against it, meaning it will be harder for you to borrow money a second time again.  DON’T GO THERE!  (If you have had problems in the past, don’t despair and feel like you’re condemned to riding the bus for the rest of your life – talk to us, as we might be able to find something that will work for you.)

Of course, these are just a few of the terms that you need to know when you’re taking out a loan for a vehicle of any description.  More in the next post!

Top Tips To Remember When You Apply For A Car Loan

Personal Finance

Monday, 19 September 2011 12:09

1.       Be realistic when you choose your vehicle.  While you might be able to get a loan for that very nippy brand new little red sports car you’ve always dreamed of, if you are buying first car or a family car, it’s best to be realistic and rein in your dreams.  A little red convertible is not very practical as a family vehicle, and if this is your first car (and you’re on your first job), you’d probably be better off with something small, economical and probably second-hand.  However, if you’re hunting for a second car for fun, then you can indulge your dreams a little.
2.       The more you can pay upfront, the less you have to borrow and the less interest you will have to pay.  Deals when you only have to pay $1 deposit or even no deposit look very attractive, but you will end up paying more in the long run.  Saving up a little before you buy a car is wise for this reason and for another reason: if you have to wait a bit, you are less likely to be impulsive and get the wrong vehicle for your needs on a whim. 
3.       Plan your budget: before you sign on the dotted line for a car loan, make sure that you will be able to meet the monthly repayments.  For many people, this may be the first time they actually set a budget.  Don’t forget to leave a cushion just in case an emergency happens, and also make room in your budget for a little “mad money”.
4.      Larger payments over a shorter period or smaller payments over a longer period?  A shorter term for the loan means that you pay less interest, but your budget will be committed more heavily with less room to move.  However, lower payments over a longer term may be more easily fitted into an existing budget, especially if you’re forced into buying a new car (which could mean “new second hand”) because your family wheels died dramatically with no hope of repair and you’re going to have to get to work somehow.
5.     Ask if you are able to make additional payments on top of your regular repayments so you can pay your loan off more quickly.  Some finance companies allow you to do this without any penalty; others have an early repayment fee.  If the company that offers the best deal does charge an early payment fee, do the maths – is the fee lower than the interest you would have otherwise paid?  If being able to make additional repayments without incurring a penalty is important to you, let us know so we can find you a finance company and/or deal that permits this BEFORE you sign anything.
6.      Don’t just buy the first car you see that fits your requirements.  Shop around, do your research and do your homework.  Consider all aspects of your purchase thoroughly, including fuel type and engine size, as well as the number of seats and the size of the car.  Also think about what happens when repairs become necessary: how easy is it to get parts?  

Finance Specials

Interest Rates

Tuesday, 13 September 2011 15:07

There could well be a few of you out there that don’t realise that Renault, that great French brand that has never quite made it here, are the owners of a very large slice of Nissan Motor Company.

So we see at the moment both Nissan and Renault marketing some very aggressive finance rates.

With Renault, you can get a 2.9% Interest Rate on the Megane, the new Latitude Sedan and the Fluence Sedan and a 3.9% Interest Rate on the commercial range, namely the Kangoo, Trafic and Master vans.

With Nissan, they are offering a 1.9% Interest Rate on the new Micra.

On top of these they are offering free servicing and a 5 year warranty on some models which all seems quite compelling.

However, as with all of these ‘special offers’ there is small print, which you must read. Both are restricted to 36 month terms and it is interesting that the ‘comparison rate’ referred to in the advertising relates to a 60 month contract for $30,000, when the Micra costs half of this amount! So, go figure!

As with all of these deals, whilst on the face of it they may seem attractive, it is always best to try and compare apples with apples. You may find that the rate is only available for the car if you pay the full ticket price for the car. Whereas you may be able to negotiate a discount and then finance the vehicle at normal rates and end up better off.

There is no doubt that for some people, these are well worth considering but we would recommend that you do your homework first and don’t get drawn in by some slick salesperson’s spiel.

Changes to FBT rules

Interest Rates

Monday, 05 September 2011 14:38

Back in May, there were some changes to the way that FBT is calculated on Company vehicles. This has lead to a much simpler way of calculating the tax, but in the interim I have been asked many times how this impacts existing contracts, so below I will try and explain in plain English.

One thing is clear, there is no longer a benefit for those travelling large numbers of kilometres per annum because there is now one flat rate of 20% across the board.

HOW THE OLD STATUTORY FORMULA METHOD WORKS

Under the old statutory formula method, the taxable value of car fringe benefits is based on the cost of the car multiplied by the relevant statutory percentage. The percentage depends on the number of kilometres the car has travelled, taking into consideration the number of days in the year that you provided car fringe benefits.

Where the last commitment in relation to a car has been entered into before 7.30pm AEST on 10 May 2011 the old statutory rates will continue to apply, as outlined in table 1.

However, if a pre-existing commitment is altered, it may be considered a new commitment that is subject to the new arrangements.

Table 1

 HOW THE NEW STATUTORY FORMULA METHOD WORKS

The new flat statutory rate of 20% applies regardless of the distance travelled.

The new flat rate applies to all car fringe benefits after 7.30pm AEST on 10 May 2011, except where there is a ‘pre-existing commitment’ in place to provide a car.

All pre-existing commitments will remain under the old statutory rates unless there is a change that would amount to a ‘new commitment’.

So there you have it, plain and simple up until April 2014, but if you have any other questions relating to this, make sure you talk to the people at FinCar.

Employee Contribution Method

Interest Rates

Tuesday, 10 May 2011 08:06

The Employee Contribution Method (ECM) is an evolution of the Novated Lease product that was initially introduced as a method of payment for Executives and high income earners to save money (taxes generally) regardless of their job description.

The original Novated Lease was established using the Statutory Fraction Method, more commonly known as the FBT method for those people who fell into the highest marginal tax bracket.

However, since July 30 2008, the top marginal tax rate rose to $180,000 from $150,000 which reduced the glamour of this product to many people.

So as not to disadvantage these people from this fundamental shift in tax rates the (ECM) was implemented to maximise the benefit from vehicle packaging for PAYE tax payers under $180,000 (after packaging).

The ECM is a more tax effective arrangement for those under the top tax margin simply because the FBT method uses a formula that is based on the capital value of the vehicle, the statutory fraction and highest marginal rate;                                                                        E.g. Capital Value X Statutory Fraction X 45% X 2.0647 (easy hey!!not)

Basically, if you are under the top marginal rate of tax and you want to ‘package’ your car you can contribute to the value of the vehicle pre-tax and the running cost post tax; saving you the difference on the margin.

For every dollar the employee contributes to the running costs of the vehicle they reduce their FBT liability of the vehicle by the same amount. So you are substituting the FBT costs for standard tax.

As a rule of thumb, you will save (on spending) approximately 10% of the value of the car each year. It may not seem too much, but if you purchase a $30,000 you will be about $3,000 per year better off than with the Standard Novation agreement. That is definitely better in your pocket than the ATO’s!

Ask the people at FinCar for more information on ECM when you call.