The Fine Print

Friday, 24 February 2012 07:00

Everywhere you turn, you get offers either for cars or for loans or for both.  They’re in the newspaper, in magazines, on the radio, on TV and on billboards – and even on the community noticeboards at the local supermarket.  If you’re on the hunt for a new car and need a bit of finance, then it can all be a bit overwhelming.  Every single ad sounds like such a good deal.  However, every single ad has fine print hiding underneath the large banner that sounds so attractive.  What do you choose?

Let’s have a little look at random at some of these car loan deals and unpack them a bit, both the big hits-your-eye bit and the small print underneath.  These have been taken more or less at random from an old newspaper but with the names of the dealers and companies removed to protect the innocent and the guilty!

1              0% 50 50.  The “no interest” bit looks great to many people, but the fine print explains what the 50 50 bit means.  It means you have to pay half of the new car price (and the ad featured brand new prestige European models) straight away and the other half 12 months later.  Great if you have been good about saving up for that first 50% and if you are in a position to scrape the other half together in just 365 days.

2              Just $XXX per week.  Looks manageable but when you look down the bottom of the page, you see that you need a 20% deposit and the term of the loan is for 48 months.  And the amount includes loan protection insurance/cover.  If you can get that 20% deposit, well and good.  At least the ad is up-front about what you’re going to be forking over each week.  This is a very common type of ad for car finance and the actual details in the small print vary from company to company, so read it carefully.

3              Purchase today with 3% interest rate.  A lovely low interest rate, sure, but the fine print says that you need a 30% deposit and the longest you can have the loan for is 36 months.  You’ve also got a loan establishment fee.  And you don’t know what your monthly repayment amount will be.

4              8.9% finance on any new or used XXXXX.  This ad didn’t have any small print apart from the usual “XXXX lending criteria apply”.  There’s no mention of deposit amounts or loan terms, so it would pay to ask a few questions here.

5              Free insurance for 12 months with finance.  The small print didn’t say much apart from the fact that the offer was only for private buyers and small business operators and you couldn’t get this if you were buying a company fleet.  And you had to be over 21.  However, this was just a small part of the full-page ad, and individual vehicles in the ad had the “just $XXX a week” banner (see above).

And if you find it all too confusing, just ask us to do the hard work for you sorting through all the myriads of loan companies!

Finance Specials

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

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

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.

Toyota 2.9% Finance Offer

Monday, 22 November 2010 09:57

Toyota has released a new finance scheme to move some over stocked vehicles into the market, named- “Toyota Advantage”. The plan is to offer just 2.9% interest to ‘approved buyers’ over a four year period using of course, Toyota Finance. It is only available on the Entry level Yaris YR, Prius, Corolla Ascent and Camry Hybrid models bought before January 31, 2011.

This is excellent news for those in need of a finance bargain. You can still negotiate a deal on the vehicle and receive the Finance package if you are approved. The reason is that Toyota is giving you the customer the bonus they would have normally given the dealer for selling the vehicle and is definitely an added incentive to tempt customers into their hybrid offerings for the first time.

David Buttner, Senior Executive Director of Sales and Marketing, Toyota Australia has recently be quoted saying, “We are determined to continue offering customers excellent value with these cars, whether by adding features, repositioning prices or through other competitive offers such as finance.”

You may choose from a straight 4 year term or add a balloon payment to it which would lower the monthly repayments even further.

This is a great deal with no loopholes but it is only available for the vehicles mentioned. All that said, it may not suit your individual needs and it may be more cost effective to get the car you actually want rather than those on offer. So if you are a private buyer or have and ABN and your own business ask Fincar to compare the deal with other vehicles you have in mind.

ATO Looking at FBT on Salary Packaging

Wednesday, 22 September 2010 12:28

Our office received a call from the Australian Financial Review for comment on the ATO looking into non compliance of FBT reporting.

Our office is seeing no decline in employees looking to take advantage of Salary Packaging a motor vehicle under a Fully Maintained Novated Lease agreement.

The reality is that the average PAYG Tax Payer is more informed today than they were, even 5 years ago. They understand that if they earn less than $180,000 per year, that, in many cases, they can make a genuine tax saving, if they set up their Novated Lease Agrement using the "Employee Contibution Method". This method removes the need to pay FBT, by paying some of the costs from "Post Tax Income". Not only do they save money, but it also romoves the onus on the employer to return FBT.

The ATO in our opinion is only looking at the reduction in FBT returns, as they believe that they are not receiving the correct revenue.

The most likely answer however is that there is a lack of education of employers. The employer, as he has not FBT liability, is not submitting an FBT return. The reality is, he should be.

As Roger Timms from Taxpayers Australia said, "it would be a quantum leap to conclude that a decline in returns was solely due to non-compliance".

Phillip Gruppelaar

An Independant MP's Salary Packaging and Fully Maintained Novated Lease Opinion

Thursday, 09 September 2010 09:10

Interesting comments from Rob Oakeshott on Salary Packaging and Fully Maintained Novated Leasing prior to his decision to support Labour.

His comment that "It is wrong to encourage people to drive high numbers of kilometres, by giving them F.B.T Tax savings", is quiet misguided.

Mr Oakeshott has always supported a "greener" Australia, but surely he needs to think things through before making such comments.

Of the many things he hasn't considered, just look at these two. People who travel in excess on 40,000 kms per year in their motor vehicles don't do it voluntarily.

Typically these drivers are called "Middle" Australia. The people who, through share economics, are forced, to live distances between work and home in excess of 50 kms each way. The travel time in peak hours is never less than 1 hour.

Due to ongoing inaction from various State and Federal Government's, public transport in these areas are grossly inadequate to handle their plight.

Consider this! Drive from home to an area around the station - 10 minutes, park and walk to station - 10 minutes, allow sufficient time to ensure train is caught - 5 minutes, Train ride - 1 hour, wait for connection - 5 minutes, bus or train to closest point to work - 10 minutes, walk to work - 10 minutes. Total time 1 hour 50 minutes at best.

Mr Oakeshott's answer don't take 2 hours a day for work travel takes 4 hours.

Then the party he has chosen to support (Labour) want to impose a policy to improve the CO2 emmissions from motor vehicles.

Motor Vehicle Manufacturers around the world fully recognise the need for a "greener" world and are making genuine endevours to improve CO2 emmissions.

By removing incentives to buy new motor vehicles , Mr Oakeshott is working against his own policies of a greener Australia.

Maybe Mr Oakeshott should attempt to commute from the NSW Central Coast to Sydney for a few weeks, if he didn't change his views I would be particually suprised.

Phillip Gruppelaar

General Manager

Welcome to our blog!

Monday, 23 August 2010 16:09

Here it is - the very first post on our new blog!  The FinCar team is committed to adding more value to this webite through the blog and will endeavour to keep it right up to date with all the latest news, views and articles of interest that are somewhat related to car finance in Australia.  We'll try to skip the boring bits and only deliver the information that's relevant and of interest to Aussie motorists

It will also give you the chance to give your feedback through the comments system on each of the blog posts and this is important as it helps us to work out what you really want to see.