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Knowing these loan finance options will make borrowing easier and save you money

Knowing these loan finance options will make borrowing easier and save you money

Knowing these 6 types of loan finance options will make it easier for you do deal with brokers and lenders.
Once you go from asking for a loan to asking for a "novated lease with a 45% balloon payment" you will be in a far better position to negotiate your loan with confidence.

Do not say you need a loan, it’s an indicator that you don’t know what you are doing.  It also shows you don’t know much about finance.   There is no such thing as a loan.  Yes, a lender will provide you with a loan but that does not describe the type of loan you will need.

Imagine this scenario: instead of saying I want to finance it, you say  I am going to get a novated lease with a balloon of 45%, with a term of 36 months and I need a repurchase guarantee of value at 36 months from you.  Now that’s posture.

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From my own experience there is nothing worse than a salesperson using buzz words when talking to you and you not knowing what they mean.   It is a way to intimidate and dominate you.  This article is to give you an overview of the various types of loans in the market and what you do with them.

Types of loans

  • Hire Purchase 
  • Chattel Mortgage
  • Finance Lease
  • Novated lease
  • Unsecured personal loan
  • Secured Loan

Personal loan.

Independent professional advice and tax advise is strongly recommend prior to entering into a personal loan.   Make it a rule to contact your Financial Advisor.   A Mortgage Broker can introduce you to a financial lending and leasing organisation.

Hire Purchase

The finance company holds the title of the object of the loan.    The title passes back to you once the payments are made on the Hire Purchase Loan.

Chattel Mortgage

The goods are owned by you with Chattel Mortgage loan.   You retain title in a Chattel Mortgage with the lender registered a claim to the title under a bill of sale.

Finance Lease

The lender rents back the good to you and you accept the risk of the residual value; ie disposing of the goods at the end of the Finance lease.   The difference between a Hire Purchase and a Finance lease is the Hire purchase will have a lot more flexibility than a Finance Lease.

Novated Lease

As part of salary packaging you take out a lease for a car with the lender.  You and your employer sign a novated agreement where the employer agrees to pay the lease out of your salary.

Balloon payments

This is a deferred payment.  It is also called a reverse deposit.  You pay the deposit at the end not the front of the mortgage.  You borrow $20,000 you pay interest and principal on monthly basis on $15,000.   The last payment you make is $5,000.  The idea is that you are able to sell the goods for $5,000 and keep up to date.  Be very careful of using this without advice.

Secured Personal Loan

You borrow a sum of money from a lender.  The lender takes an asset as security.  It may not necessary be the object you are buying for the secured personal loan.

Unsecured personal Loan

This is a loan that is made to you with no associated security attached to it.  It is based on a risk assessment of the lender on your ability to repay.

From this short list there are hundreds of variations of the types of loans mentioned above.  I would strongly suggest that you do more research on the loans types and  the various uses of loan types.

A tip is to not to make distinctions on subcategories of loans.  Stay focused on the type of loan first.

An example of this would be: Truck Finance lease, Car Finance lease, Equipment Finance Lease, Property Finance leases.  Each may have variations so it is important you understand the key elements of a Finance Loan.  This will make it easier for you in looking at variations and some subtle elements of loans on offer.

Remember you are in an area of legal minefields and not always playing on a level playing field.  Seek professional advice before you sign anything.

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