Finance and contracts

Once you’ve decided on your budget, and the make and model of the car or motorcycle you would like to purchase, it’s now time to shop around for the best price. Price can vary from dealership to dealership. Special offers will happen at different times throughout 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 you need to consider different options for payment.

Loans

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


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.

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. 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.

Varying the credit contract

If you’re having problems repaying your loan, the law allows for a variation in a credit contract under the following circumstances:

  • 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 can’t come to an arrangement with the lender or have a dispute or complaint about your credit contract, contact the Credit and Debt Hotline on 1800 007 007.

The contract and deposit

If you sign anything at a car dealership, it’s 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’s common practice for dealers to take a holding deposit when you sign a contract. Always get a receipt for this money. If you need to have a loan approved first, make sure it’s 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.

Leasing

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 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. 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.

Cooling off periods

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

Cooling off period FAQs

How does a purchaser 'cool off' from a purchase

You can terminate the contract by giving written notice to the dealer during the cooling off period. The notice of termination must be signed, either by you or your solicitor or barrister.

What does 'cooling off' cost?

On termination of the contract you must pay the dealer $250 or 2 percent of the purchase price, whichever is the less. (This means 2 percent of the purchase price for cars priced $12,500 or lower and $250 for all cars over $12,500).

When does the cooling off period apply?

The cooling off period only applies to people who purchased the car through linked credit. Linked credit is when finance 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.

When does the 'cooling off' period not apply?

There is no cooling off period for sales:

  • a sale by a motor dealer to another motor dealer, a financier or a motor vehicle recycler,
  • a sale at a bona fide auction,
  • a sale of a vehicle intended to be used predominantly for business or other commercial purposes,
  • a sale where the provision of credit by a linked credit provider of the motor dealer to the purchaser is not arranged or facilitated by the motor dealer

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 where the dealer is open to 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.

Example 1: 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 2: 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.

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.

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 and Repairers Regulation 2014.

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

You cannot keep the vehicle during the cooling off period, unless agreed. If you keep the car during this time and you still ‘cools off’, you’re liable for any damage, other than fair wear and tear.

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

You cannot keep the vehicle during the cooling off period, unless agreed. If you keep the car during this time and you still ‘cools off’, you’re liable for any damage, other than fair wear and tear.

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

A dealer must not sell, give in exchange or dispose of a trade-in vehicle during the cooling off period. If you ‘cool off’, the dealer must return the trade-in vehicle. The dealer is liable for any damage to the trade-in vehicle other than fair wear and tear.

Deposits

You should not sign any agreement until you’re sure that you intend to purchase the vehicle. If you pay a deposit and sign a vehicle purchase order form, you’re entering a legal contract to buy a vehicle. If you change your mind and break the contract, the seller may be entitled to keep the deposit and ask you to pay a cancellation fee.

Important information:

  • You should never sign vehicle purchase order forms and applications for finance until you are sure.
  • You should never sign order forms with more than one trader.
  • You should never sign a contract that is blank or has blank spaces.

Variations and price rises

When a contract is formed, 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 a contract only to be told by the dealer that there has been a factory increase in price. The order form that has been signed will cover this problem. It form states if a consumer signs and agrees to pay a certain price they are not required to pay the increase. However, you cannot force the dealer to sell the vehicle at the order form price.  You have the option to purchase at the new price or cancel the order.

Delays in delivery

Where delays in the delivery date occur, you should check your 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 when there is a breach of the terms and conditions.

Dealer and statutory charges

Dealer charges (also called ‘delivery’ charges) are costs from 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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