Edition 1, 2006 - The Components Of A Finance Facility
Finance Focus #1 2006
The Components Of A
With the main types of vehicle finance under our belts from the last edition, let's continue on the research road to consider the components of a vehicle finance facility.
There are four key elements to think about when calculating your next vehicle finance contract:
Present value - the purchase price of the vehicle, generally including dealer delivery charges, GST and any extras you have included. You might also choose to finance the insurance (e.g. comprehensive or gap insurance), but make sure that this has not been included in the purchase price of the car when the future (residual) value is calculated.
Residual value - also known as the future value or balloon $ amount, this is the projected value of the car at the end of your finance contract. If you are entering into a consumer loan, you will generally not have a residual. However, for a commercial facility, most people are eligible and opt for a residual. Usually referred to as a percentage of the present value (see above), the residual should be calculated using only the vehicle's purchase price, and not including hidden charges or insurance.
Term - the length of the finance contract (usually between three years (36 months) and five years (60 months)).
Interest rate - currently ranging from a base rate of approximately 7% upwards, depending on the lender, the vehicle you are financing, and your credit profile. The banks will tell you the interest rate is the most important element of a finance contract... but actually it isn't, and most people are miscalculating by not factoring in ongoing charges, establishment fees and termination penalties. The interest rate you think you have can be 3% or 4% higher when you factor in these charges, so always look at the whole picture.
Over the next few editions, we'll explore the relationship between each of these components to help you understand your options when planning your next vehicle purchase.
New Service - Online Finance Quotes
Stratton Finance has always been dedicated to providing innovative products and services for our customers. In line with this philosophy, we are proud to offer a new and unique service: online finance quoting, which provides a real-time estimate of your monthly repayments, taking into account the vehicle you are purchasing, your past lending history and basic financial profile.
If you or any of your friends and family are considering the purchase of a new car, we invite you to visit our website and complete an online finance quote.
Next Issue: Residual values, be realistic.
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