Buying a car using hire purchase

Leasing can also be called commercial Hire purchase and term purchase. In the case of a commercial lease, the creditor (bank, finance company) owns the asset during the term of the loan. A lender records an interest (also known as a lien) on the property to show others that it is using it as collateral for the loan.

Although you can use the property by paying for it, ownership does not pass to you until you make the final payment. The transfer happens automatically when the last payment is made and the lender also clears your interest and you have what is known as a clear title. You also have the option to purchase the property at any time during the term of the lease.

If you do not make the agreed payments, the creditor has certain rights and can repossess the vehicle and sell it to collect the debt.

Purchase and sale contracts are generally used by companies, partnerships and individual owners if the vehicle is mostly (50%) for commercial use. Under Australian Taxation Office (ATO) rules, businesses that account for GST on a cash basis (they record business income and expenses as they arise) can generally claim the Income Tax Credit (ITC) at any GST included in purchase price. active on your next trade (BAS).

Useful information about Hire Purchase

Before purchasing a used vehicle, you can ensure the owner has ‘free title’ or registered interest in it by performing a PPSR (Personal Property) check to protect against possible repossession.
For used cars, you can also arrange for an inspection through other service providers to see if ownership has ever been taken or stolen and if the vehicle has been flooded or water damaged.

Key factors when using Hire Purchase

Finding the best lease for you will depend on your individual circumstances, but the most important factors to consider are:

Interest rate – The interest rate plays an important role in determining the repayment amount. The higher the interest rate, the higher the repayment. But you need to be aware that the interest rate is not the only factor that will affect the total cost of your loan.

Fixed and Variable Rates – The interest rate is usually fixed, meaning it will stay the same for the life of the loan, but it can also be variable. If the interest rate is variable, that means it can change during the period you have the loan. Variable rates can be tied to the interest rate the lender is paying for their money, much like many home loans. So generally speaking, if you have a variable rate and the Reserve Bank raises interest rates, your interest rate and repayment amount will increase. With a fixed rate, you know exactly how much your payments will be over the life of the loan, and you can budget accordingly.

Benchmark interest rate – The benchmark interest rate combines the interest rate with all expected fees and costs associated with your loan to help you identify the true cost of borrowing. However, it does not include state and statutory fees, insurance premiums, or fees that may arise during the term of the loan, such as statement of account or late fees.

Payments – Your loan may include multiple payments. Typical fees include origination fees, which are one-time fees a lender (bank, finance company) pays to approve and set up your loan, and ongoing fees such as account maintenance or loan service. Fees are included in the loan payment, so it is not worth paying them from your own funds. Make sure you are aware of all costs associated with the loan and make sure they are included in your loan payments.

Loan Term – Lenders have a minimum and maximum loan repayment period. Depending on the type and age of the property, the minimum loan duration is usually 1 year, up to 7 years (less for some properties and older used properties). The term of the loan is another important factor in determining the repayment amount. The shorter the time, the greater the compensation, and the longer the time, the lesser the compensation. But remember, the longer the term, the more you’ll pay in interest and the more you’ll pay in total.

Deposit – You can reduce the loan amount with cash or exchange. By reducing your loan amount, you can reduce your payments and your total debt.
Total Amount Payable – This is the total amount you paid