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Is a commercial car loan better than a personal car loan?

There are numerous options when it comes to vehicle finance. It can depend on individual circumstances and what you need the vehicle for. 

If you’re trying to decide whether a commercial car loan or a personal car loan is better for you, here’s a breakdown of what’s involved with each option. 

Commercial car loan

A commercial car loan involves financing a car for your company, or a vehicle that is primarily for business use. It can cover cars, vans, and some trucks, though for a heavy-duty vehicle you may need a commercial truck loan. 

For a business car loan, there are numerous options to choose from including novated leasing, a chattel mortgage, and hire purchase. Business car loan rates are generally lower than personal car loans, and it can depend on your budget and business as to which type is best. 

A chattel mortgage gives you ownership of the vehicle at the time of purchase, rather than once the loan is paid off. With hire purchase, you hire the vehicle with the intent to purchase it at the end of the loan. 

If the vehicle is primarily for business use you may want to speak with your employer about novated leasing. A novated lease involves an agreement between you, your employer and the lender, in which your employer is responsible for the loan repayments, and pays them directly from your pre-tax salary. The car and finance are arranged in your name, so if you leave, you retain the car and take responsibility for the remaining repayments, the employer is not left with the vehicle or the costs. 

There can be pros and cons to each commercial car loan option, so you need to do your research to see which is most suitable. 

Personal loan

A personal loan can be used for a range of purposes. This could include medical care, a holiday, home renovations, or purchasing a new car. 

There are unsecured and secured personal loans. Unsecured personal loans don’t require an asset to be held as security for the loan, whereas a secured loan requires an asset to be held as security for the loan for flexible terms of 2-7 years. 

If the car is for personal use, you may want to consider getting a car loan rather than a personal loan to finance it. Specifically designed for vehicle finance, a car loan can be used for various types of vehicles, both new and used. 

Unsecured personal loans can sometimes come with higher interest rates, whereas with a secured car loan, you can often get a lower interest rate as the vehicle is secured against the loan. 

The right finance option

With so many finance options available, it can be hard to work out which is best for you. It can depend on what you need the vehicle for; whether it’s for personal or business use may influence what finance option is best. 

A car loan calculator can help you to gauge the cost of your loan repayments, as well as interest payments, so you can determine if a loan fits within your budget. When comparing your finance options, there are a few things to check to ensure you’re getting the best rates and the right loan for your situation. 

You want to get the lowest interest rate you can whether you get a business car loan or a personal loan. Interest can result in a significant amount of money paid over the life of your loan term. 

Consider your credit rating. This will impact your eligibility for certain interest rates. If you have a bad credit rating, you may want to work on improving it before applying for a car loan, to increase your chances of a lower rate. 

When looking at advertised rates, make sure to check the comparison rate. This combines interest rates and fees, so you get a better overall idea of the costs associated with the loan. 

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Sometimes advertised rates can be lower to attract more attention, but when you speak with a finance specialist rates may differ as they are impacted by your circumstances. No matter what type of vehicle finance you choose, you should always aim to get the best rates you can on your car loan. 

Check any fees and charges with the loan, these could include establishment fees, late payments fees, ongoing management fees, or early termination fees. You may want to also consider if the loan allows for flexibility with payments. Some loans may allow you to make early or additional repayments, while others may charge fees. 

Your loan term plays an important role in the overall loan amount you pay. A longer-term can be tempting, as your repayments will be smaller, but the longer the loan term the more you pay in interest, even if you get a lower rate. With a shorter loan term, you pay less interest, but your repayments will be higher. You need to work out what fits within your budget, though ideally, you want to get the shortest loan term you can. 

To find out whether a commercial car loan or a personal loan is better for you, contact our team of 360 Finance specialists.

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