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Finance and contracts 

Once you have decided upon your budget, and the make and model of the car or motor cycle you would like to purchase, it is time to shop around for the best price.


Price can vary from dealership to dealership. Special offers will happen at different times through the year and most dealerships will reduce prices just before the next year’s models are delivered.

A new vehicle can be quite expensive so ways of paying for the purchase need to be considered. Many dealerships will offer ‘finance’ (ie. a loan) to their customers, through a credit provider, but it is also worthwhile shopping around to get the best deal. Banks, credit unions, and other financial institutions all lend money and can be cheaper and more flexible than the car dealerships.

All credit transactions that are predominantly for personal, domestic, or household use are regulated by the National Consumer Credit Protection Act 2009. If the credit is provided wholly or predominantly (over 50%) for business purposes, the Act may not cover you.

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When comparing loans you need to have a good understanding of the terms used in loan contracts. Here is a list of terms commonly used in contracts.

Principal - The amount you borrow.

Interest - The charge from the lender for using its money. This is usually expressed as a yearly rate and called the annual percentage rate.

A fixed rate of interest - This means the rate will remain the same for a set amount of time. This offers greater control over your finances because the repayment amount will always be the same for the fixed interest period. The fixed interest rate and the time period it applies to must be stipulated in the credit contract. Generally you will not be able to make more than the agreed repayments (ie. pay the loan off more quickly) – check the contract for any conditions that apply.

A variable interest rate - This means the rate will move up and down depending on the market.

A split interest rate - You may be able to choose to split the type of interest rate that applies to a loan. This occurs two ways:

  • a fixed interest rate applies for a set amount of time. When that time elapses, the rate can be changed to a variable interest rate
  • part of the amount borrowed has a fixed interest rate applied and the remainder amount has a variable interest rate applied.

The total amount you pay to the lender will depend on the amount you borrow, the interest rate charged and the length of time that you borrow the money (the term of the loan). Lenders will usually calculate interest charges on a daily basis. These interest charges are usually added to your loan account each month.

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Balloon repayments 

This is a loan where you pay reduced monthly instalments for the term of the loan, with a large final payment (balloon payment) that clears the debt.  You may have a number of options available to you in dealing with the balloon payment, namely paying the full amount, re-financing or rolling over into another credit product.

Car dealerships may provide balloon loans that offer a guaranteed buy-back amount on your vehicle.  Make sure that you are aware of the conditions attached to these arrangements. For example, if you buy a car on the basis that you are promised a buy-back amount for the vehicle after a period of time, you could find this amount is dependent on factors such as the condition of the vehicle and kilometres travelled.

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Varying the credit contract 

If you find you have problems repaying your loan the law allows for a variation in a credit contract on the basis of hardship, but the following circumstances must exist:

  • your inability to make repayments must be due to unemployment or illness or some other reasonable cause
  • you expect that you will be able to make repayments if they are altered
  • the situation is only temporary and it should improve in the near future.

Contact the lender and try to come to an arrangement to vary the loan contract with them. If you reach an agreement the lender must give you written confirmation of the terms. This could involve reducing the repayments and extending the term of the loan or postponing repayments for a period of time or a combination of both.

If you are having difficulties coming to an arrangement with the lender or have a dispute or complaint about your credit contract you can get help from the Credit and Debt Hotline – call 1800 007 007.

The Credit and Debt Hotline is an independent and confidential advice and advocacy service for credit and debt matters.

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The contract and deposit 

If you sign anything at a car dealership, it is probably a sale contract. You may also sign a loan application or loan contract on the premises.

Contracts are legally enforceable. Read all documents carefully. Do not sign anything unless you understand what you are agreeing to, and you are certain you will be buying the vehicle.

It is common practice for dealers to take a holding deposit when you sign a contract. Always get a receipt for this money.

If you have decided to buy a vehicle but you need to have a loan approved first, make sure it is written into the contract that completing the purchase is conditional on you obtaining the loan.

If you have this specified in the contract and you cannot get a loan after reasonable attempts, you may be able to cancel the contract and have the deposit returned to you.

Under the Australian Consumer Law, there are protections against unfair terms in a consumer contract. If you think a term in your contract is not fair you should first try to resolve the issue with the dealer. If you are unable to resolve the matter you can lodge an official complaint with Fair Trading.

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Leasing is another type of finance that may suit people who regularly trade-in their vehicle. In a lease arrangement where there is no obligation to buy the vehicle, the ownership stays with the lender and it is returned at the end of the lease term. You can terminate the lease early by returning the vehicle, but there is a cost involved and this should be explained in the contract. During the term of the lease you are responsible for making the lease repayments and for the vehicle’s running and maintenance costs.

When you lease a vehicle the payments are based on the difference between the vehicle’s sale price and what it is estimated to be worth at the end of the lease (its residual value). There can be benefits associated with tax and GST if your vehicle is for business use. You should consult your accountant to determine if these benefits apply to you.

Vehicles leased for business or commercial purposes and novated leases are not covered by the National Consumer Credit Protection Act.

Some leases have conditions that base the residual value of the vehicle on the distance the vehicle will travel and on its condition. If for some reason the vehicle is not worth the estimated residual value at the end of the lease then you may have to make up the price difference. If you intend to buy a vehicle on a lease agreement, make sure you are aware of any conditions on the vehicle such as mileage and its condition at the end of the lease period.

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Cooling off periods 

A one day, waivable cooling off period applies to purchases of new and used cars where the purchase is financed by a linked credit arrangement. Linked credit is where finance for the purchase is provided by or facilitated by the motor dealer selling the vehicle.

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How does a purchaser 'cool off' from a purchase? 

A purchaser may terminate the contract by giving written notice to the dealer during the cooling off period. The notice of termination must be signed, either by the purchaser or the purchaser’s solicitor or barrister. The right to terminate a contract may be exercised even though the purchaser has taken delivery of the motor vehicle concerned.

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What does 'cooling off' cost? 

On termination of the contract the purchaser is liable to pay the dealer $250 or 2% of the purchase price, whichever is the lesser. (This means 2% of the purchase price for cars priced $12,500 or lower and $250 for all cars over $12,500).

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When does the cooling off period apply? 

The cooling off period only applies to purchases of cars by linked credit.

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What is linked credit? 

Linked credit is where finance for the purchase is provided by or facilitated by the motor dealer selling the vehicle. Linked credit has the same meaning as in the National Consumer Credit Protection Act.

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When does the cooling off period not apply? 

There is no cooling off period for sales:

  • of motor vehicles other than cars (eg. motor bikes, farm equipment)
  • of commercial vehicles
  • at an auction
  • paid for by cash
  • on credit other than linked credit (The cooling off period does not apply where credit is provided by a finance institution contacted directly by the purchaser, that is, where the dealer does not provide, arrange or facilitate the credit)
  • where credit is provided by a linked credit provider of the dealer but the provision of credit is not arranged or facilitated by the dealer
  • made by a motor dealer to a trade owner.

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When does the cooling off period begin and end? 

The cooling off period begins when the contract is signed (entered into) and ends at 5pm on the next day on which the dealer carries on business with the public. However, if the dealer closes for business before 5pm on that day, the cooling off period ends at the close of business on the next day the dealer is open for business following that day.

Example A: A dealer is open for business 9am to 6pm Monday to Saturday and 11am to 3pm on Sunday. If a contract to purchase was signed on Friday the cooling off period would end at 5pm on Saturday.

Example B: A dealer is open for business 10am to 7pm Monday to Friday, 10am to 3pm on Saturday and closed Sunday. If a contract to purchase was signed on Friday the cooling off period would end at 7pm on Monday.

Example C: A dealer is open for business 9am to 4pm Monday to Friday, 10am to 4pm on Saturday and closed Sunday. If a contract to purchase was signed on Saturday the cooling off period would end at 4pm on Tuesday.

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Does the dealer have to advise the purchaser of the cooling off period? 

Yes, the notice of a purchaser’s right to the cooling off period must be included in the contract. The notice must be in the prescribed form. The prescribed form is Form 12 in the Motor Dealers Regulation 2014.

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Can the cooling off period be extended and how is the cooling off period waived? 

The cooling off period may be extended by a provision in the contract of sale or by agreement with the dealer.

The cooling off period can only be waived by the purchaser signing the prescribed form. The prescribed form is Form 12 in the Motor Dealers Regulation 2014.

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What happens to the purchased vehicle during the cooling off period? 

The purchaser is not entitled to possession of the motor vehicle during the cooling off period, unless the purchaser and the dealer agree. If they agree and the purchaser ‘cools off’, the purchaser will be liable for any damage to the motor vehicle while it was in the purchaser’s possession, other than fair wear and tear.

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What happens to any trade-in vehicle during the cooling off period? 

A dealer must not sell, give in exchange or otherwise dispose of a trade-in, or any interest in or related to a trade-in, given or agreed to be given by a purchaser under a contract during the cooling off period. If the purchaser ‘cools off’ from the purchase, the dealer must return to the purchaser any ‘trade-in’ vehicle. The dealer is liable for any damage to the ‘trade in’ vehicle other than fair wear and tear.

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What happens if the contract is cancelled and either the trade-in or purchased vehicle cannot be driven? 

A purchaser or dealer is not liable to return a motor vehicle as required by the legislation if the purchaser or dealer is unable to return it because of a defect in the car, not caused by the purchaser or dealer, that has rendered the motor vehicle incapable of being driven or unroadworthy. The purchaser or dealer must, however, permit the collection, or arrange for the collection, of the motor vehicle.

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Consumers should not sign any agreement until they are sure they intend to purchase the vehicle. When a consumer pays a deposit and signs a vehicle purchase order form they are entering a legal contract to buy a vehicle. If they change their mind they break the contract and the seller may be entitled to keep the deposit and legally require the customer to pay a cancellation fee.

Important information:

  • Consumers should never sign vehicle purchase order forms and applications for finance until they really make up their mind.
  • Consumers should never sign order forms with more than one trader.
  • Consumers should never sign a contract that is blank or has blank spaces.

Variations and price rises

When a contract is formed to purchase any goods the conditions of the agreement, including the price, are agreed upon. Neither party has the right to vary any of these conditions without the approval of the other party.

Often consumers will contact Fair Trading after having signed for the purchase of a new car only to be told by the dealer that there has been a factory increase in price. The order form that has been signed will generally cover this eventuality. It states if a consumer signs and agrees to pay a certain price they are not required to pay the increase.  However, consumers cannot force the dealer to sell the vehicle at the order form price.  They have the option to purchase at the new price or cancel the order.

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Delays in delivery 

Where delays in the delivery date occur, consumers should check their contract for terms and conditions. Some contracts may allow for an extension of time for the dealer to supply the vehicle.

Generally, contracts can only be cancelled where there is a breach of the terms and conditions.

Dealer and statutory charges

Dealer charges (also called ‘delivery’ charges) are costs payable to the dealer by the purchaser of a new motor vehicle. These charges relate to costs incurred by the dealer for transportation, stock finance, and servicing the vehicle prior to delivery.

Statutory charges include charges applied by government authorities on the sale or registration of a motor vehicle and include:

  • The tax and fee payable on registration.
  • Stamp duty payable on the certificate of registration of the vehicle.
  • Compulsory third party insurance.
  • The premium and stamp duty payable on the insurance policy.

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