Buying a car can be the first big financial leap you take in your life but no matter what stage you’re at, coming up with the upfront cost of a car can be daunting.

You need to do your homework to decide whether taking out a car loan is the right move for your circumstances. First up, let’s consider some of the reasons it could work for you.

Benefits of a car loan

The most obvious advantage of getting a loan is it allows you purchase the vehicle without a big whack to your savings account.

This means your cash reserves can be kept for other purposes such as saving for a home deposit or servicing a home loan, other investments, or simply maintaining an emergency fund.

You can still put up a sizeable deposit for a car loan if you choose, but many borrowers seek finance for the full price of the car.

Car loans can also help bolster your credit score, provided you make your repayments on time and in full of course.

A loan gives you access to cars that might be out of your price range if you were to rely on your own savings. This could save you in the longer-term in achieving better resale value on the vehicle you buy (but that may not always be the case).

If you’re planning to use the car for business purposes, the interest you pay on a car loan can be claimed as a tax deduction as well as GST on the purchase and depreciation of the vehicle.

There are a few variables to consider here in whether to borrow or lease, so it’s worth reading the comprehensive article below to determine what will work best for you.

See also: Car Loan vs Car Lease - Comparison

Disadvantages of a car loan

As usual, wherever there are upsides, there are downsides. One drawback of getting a car loan is you’ll be paying interest and loan fees, as you would with any loan.

When the car is secured by your loan, you don’t actually own it until your last repayment.

Finally, there is depreciation. For some car purchases, the value of the vehicle can decrease faster than the amount you owe on the loan.

This means you’ll be paying off more than the car is actually worth, known as negative equity in lending terms. But this can depend on a few factors such as the car you purchase and market conditions.

Where Firstmac car loans can make a difference

If you’ve decided a car loan is your best way forward, you’ll no doubt be bombarded by offers of finance, particularly if you’re buying through a dealer.

If you’re purchasing privately, you’ll likely be doing your own research of the car loan market or perhaps going through a broker.

There are many car loans on the market but it’s worth considering a Firstmac car loan for what they do differently.

What is Firstmac?

First up, it’s always good to know who you’re doing business with. Firstmac is one of the largest non-bank lenders in Australia that has been around for more than 40 years. It remains a family-owned business based in Brisbane and is well regarded within the Australian financial industry.

Firstmac offers home loans, SMSF loans, and car loans in the retail lending market.

What is different about a Firstmac car loan?

Variable rate

Perhaps the major point of difference with a Firstmac car loan is that it offers a variable interest rate. The vast majority of car loans offer fixed rate finance - Firstmac does as well - but its variable car loan rates are considerably lower than their fixed counterparts.

Although no one really knows what interest rates are going to do in the foreseeable future, financial markets are currently in general agreement they will be heading lower.

Firstmac’s Head of Third Party Sales Jake Sanders points out borrowers signing up for a variable rate car loan can make significant savings with a fair amount of cushioning built in if interest rates rise.

“Given that the Reserve Bank of Australia generally puts interest rates up in 0.25% increments, it would take four interest rate rises to surpass the corresponding fixed rate,” Mr Sanders says.

As car loan terms are over relatively short periods, in this case three to seven years, it gives variable rate borrowers a chance to take advantage of forecast falling rates.

Of course, there is no guaranteeing where interest rates will be in the longer term, but Firstmac car loans offer a mid-term refinancing option for secured consumer car loans, giving borrowers the chance to reassess their best move.

Variable loans also allow flexibility with loan repayments which can be particularly useful if you’re wanting to make extra payments or plan to pay your car loan off early, but there are a few rules.

Firstmac allows you to pay off the loan without penalty at any time during the final year of the loan term but charges a $500 early exit fee if you’re three years or more in (but not if it’s your last year) and $700 if you exit in the first two years of the loan.

Redraw facility

Redraw facilities are generally associated with home loans. In simple terms, they allow borrowers to pay extra money into their loan accounts which can effectively reduce the amount of interest they pay. These extra funds can be accessed any time they’re needed.

A redraw facility is available on Firstmac’s variable car loan allowing borrowers to stash any extra cash into their loan account to save them interest and potentially pay off their loan faster. (But note the early exit fees above.)

Mr Sanders says as far as he’s aware, no other car loan product comes with a redraw facility.

Borrowers can withdraw any extra payments as they wish to a maximum amount of $5,000 a day.

Firstmac Car Loan features

Here’s the rundown on Firstmac’s Car Loans, starting with the features that apply to variable loans only:

Variable car loans only

  • Lower rates than corresponding Firstmac fixed rate car loans (rates will move in line with market conditions)

  • Redraw facility (redraw up to $5,000 a day using Online Services)

  • No balloons (not the blow-up kind - more on balloons soon)

All Firstmac car loans

  • Available for new and used cars - up to a maximum of 12 years old

  • Minimum loan amount $5,000

  • Maximum loan amount $150,000 ($50,000 for vehicles 8+ years)

  • 3 - 7-year loan terms (maximum loan term 4 years for vehicles 8+ years; maximum age of vehicle 15 years old at end of term)

  • Principal and interest repayments

  • Refinance and Private Sale available

  • Discount for electric vehicles (more details on this below)

Fees

  • $400 application fee (dealer sale); $500 application fee (private sale)

  • $8 monthly fee

  • No annual fee

  • No discharge fee

  • $700 early exit fee in first and second years of loan term

  • $500 in subsequent years of loan term (excluding final year of term)

  • $150 default fee (after 20 days)

  • $35 dishonour fee

Information correct as at August 2024. Fees and conditions may change at any time.

Firstmac Fixed Rate car loans

Benefits

Of course, there are some people who prefer the certainty of knowing what payments they’ll be required to make during the course of their loan. This can help with budgeting and planning your financial affairs with some confidence as to your ongoing commitments.

Fixed rate car loans can also shield you from the vagaries of the market which can dictate wide variations in interest rates, both up and down.

Balloon payments

Some Firstmac fixed rate car loans come with what are called ‘balloons’. In the car lending world, a balloon payment is an agreed one-off lump sum that you pay the lender at the end of your loan’s term.

Generally, balloon payments can account for a large - or inflated - slice of your car loan’s balance, hence the name balloon. Sometimes a balloon payment can be up to half of a car’s purchase price.

In practical terms, balloons at the end of your loan considerably reduce the loan repayments you’re required to make in the meantime. But it also means you’re deferring paying the interest on the balloon amount until the end.

Whether to take up a balloon option depends on your own needs and circumstances. There are pros and cons:

Pros of balloon payments:

  • Lower regular repayments

  • Frees up cash for other purposes during the term of the loan

  • Gives you time to save for the balloon repayment at the end of the loan

  • Allows you to weigh up whether to sell the vehicle and use the cash to pay off the loan

Cons of balloon payments:

  • Loan cost is higher overall because of interest accumulated on the balloon amount

  • Can catch some borrowers out at the end of their loan term

  • The longer the loan term, the lower the maximum balloon payment permitted

  • May have to pay out more than the car is worth if vehicle has depreciated (although this can be the case with many car loans)

Here are the balloons available on Firstmac fixed rate car loans only, as at August 2024.

Loan term

New/Demo Car

Used (<4 years) car

3 years

50%

40%

4 years

40%

30%

5 years

30%

20%

Firstmac Green Car Loans

Many companies are jumping on the environmental bandwagon, but Firstmac is offering good discounts on its regular car loans for electric vehicles.

The company works in cahoots with the Clean Energy Finance Corporation to reward borrowers buying new or demonstration electric vehicles (not pre-owned ones).

The same terms and conditions apply as with its regular car loans and cars have to be registered for the discount when the loan application is lodged.

Easy approval process

The final big tick for a Firstmac car loan is its streamlined approval process. The company is flexible in considering various income types for a car loan. This includes full- and part-time workers, contract workers who’ve been employed for a minimum of six months, PAYG casual workers who’ve had six months with their current employer or 12 months continuous total time in employment.

It will also consider those with variable incomes affected by overtime, shift allowances, commissions, and bonuses as well as the self-employed, provided they have relevant documentation.

Firstmac can grant auto-approvals based on information uploaded into its database although this will be subject to verification.

Firstmac car loans are available through accredited brokers or through the company itself via its website or by phoning 13 12 20 from 7am - 7 pm weekdays.

In the interests of full disclosure, Savings.com.au is an associate of Firstmac. Read about how Savings.com.au manages potential conflicts of interest, along with how we get paid.

Image by Frank McKenna on Unsplash