Cars go hand-in-hand with finance. Estimates place approximately 90% of new car sales in Australia, as purchased on finance.
In the first of a series of guides on asset finance, Nodifi gives you the low-down on vehicle finance.
- Rates start at 3.5% and vary per age of vehicle and client profile
- Loan amounts start at $5,000 and don’t have a maximum (for the right profile)
- Car loan can be secured or unsecured
- Unsecured car loans often cover modified or classic cars
- Dealer and private sales require different documentation
Vehicle loans in a nutshell
Usually the process is pretty simple. The client receives a pre-approval for a loan amount, then goes car shopping.
Once a vehicle is selected, the details (age, make, model, agreed price, etc.) are submitted and the loan is adjusted accordingly. Funds go directly from lender to seller (or vendor). Repayments usually start after two weeks.
Firstly, the all important rates
In a nutshell, newer vehicles and borrowers with an excellent credit score command lower interest rates. From a Nodifi perspective, rates start from 3.5%.
For most lenders, the maximum vehicle age for a secured vehicle loan is 25 years at the end of the loan term. However, Nodifi has access to lenders with no age limits.
Common rates per client profile
- New car / asset backed / high & stable income / excellent credit score (700+): 3.5% – 7%
- 3-10 year old car / asset backed / stable income / average credit score (550): 7% – 8.5%
- 3-10 year old car / renting / casual work / low credit score (400 and below): 10%+
It’s important to note, these are a guide only and are subject to change pending lending criteria.
How much can my client borrow?
Similarly to rates, the loan amount is also subject to the borrower’s profile. Additionally, different lenders specialise in different loan amounts and borrower profiles.
Loan amounts are calculated on capacity – or simply, how much the client can afford to pay back each scheduled repayment. Naturally, this also depends on the loan term and rate.
Nodifi can finance vehicles as low as $5,000. Maximum lends are commonly capped at $500,000. However, ‘the sky’s the limit’ for suitable borrower profiles.
Nodifi has financed some incredible assets over the years, including a $1.3 million Ferrari.
Motor vehicle loans can be secured or unsecured. Unsecured loans are not tied to the asset so should a borrower default on repayments, the lender can’t repossess the vehicle.
Secured car loans come with less risk for lenders due to the fact they can take the asset back if the loan defaults. Therefore, rates for secured loans are generally lower than unsecured. Secured loans make up the bulk of consumer asset finance.
Unsecured loans are still prevalent for varying scenarios – unsecured loans are commonly a personal loan.
So in what common scenarios would a borrower source an unsecured loan?
- Modifications: 4x4s and performance cars are hugely popular in Australia. If your client wants to use some of the loan money for modifications, unsecured loans can allow them to do so. Popular modifications include off-road suspension, upgraded wheels and engine accessories.
- Classic cars: As mentioned above, most secured car loans have vehicle age limits. If your client wants to purchase a classic car, a personal loan may be the best option. Commonly, borrowers want to restore iconic cars older than 25 years.
To note, there are specialist lenders that offer secured loans for classic cars – Nodifi can assist with these scenarios.
Despite the higher rates, the benefit of unsecured loans for your client is that funds can be used for things in addition to the actual vehicle, providing more flexibility.
Other than the age of the vehicle, consumer asset finance is not fussed on where the vehicle comes from. Your client can purchase a vehicle from a dealer or private seller, local or interstate.
- Certificate of Currency: Vehicles with secured car loans need to be insured. The lender must be listed as an interested party. To prove this, insurance companies need to provide a Certificate of Currency.
- New cars: If the vehicle is brand new, the financed amount on a secured loan can include stamp duty and registration costs.
- Used cars:
– Finance: If the vehicle has finance remaining on it, a payout letter from the original lender is needed so that some funds go to payout the remaining loan and some go to the seller. (yes, you can buy and sell cars on finance)
– Roadworthy certificate: Depending on the state your client resides in, you may need a roadworthy certificate when financing a used car with a secured loan.
– Seller bank details: Most lenders require copies of private seller bank statements to make sure the funds go to the correct account.
– Stamp duty + registration: These costs are commonly not able to be included within the financed amount – the borrower would need to pay out of pocket for these costs.
Documents and information
Requesting and submitting documents isn’t the ‘wild goose chase’ it used to be. Common documents and information required for a consumer car loan include:
1: Car details
Lenders need to know the age, make and model plus registration and VIN details.
Length of employment, name & location of employer, income.
Address, time at address, mortgage repayments or rent history. If a borrower has lived at an address for less than a year, previous addresses are often required.
4: Credit file
As with all kinds of finance, a credit file is needed to view credit history.
5: Monthly net income vs expenses
Some clients have additional sources of income, such as rental or board income. You’ll need to know your client’s finances including, monthly income and expenses (general living costs and any other loans and bills). Partner income is often taken into account as it can lower living expenses and increase capacity to repay a loan.
Settlement times can vary considerably per lender and loan application. Sometimes more complex lending situations require additional documentation and can therefore take longer.
Depending on the loan (secured or unsecured), your client or the seller of the vehicle will receive funds shortly after settlement. Times vary depending on their banking institution.
Motor vehicle (consumer) finance in summary
There are dozens of lending institutions in Australia that deal with thousands of loan applications every day. Finding a lender matching your client’s situation can be tough – especially if consumer asset finance is unfamiliar territory.
At Nodifi, we’re here to help. Find out how you can offer your clients fast and fuss-less finance today by submitting a scenario.