Vehicle finance and contracts
Buying a new or used vehicle can be a big financial commitment. Find out about the different types of loans and financing options available to you.
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Loans
If you are buying a vehicle, there are different payment options in the marketplace.
If you are not buying your new or used vehicle outright, you will need to get a loan or reach a finance agreement.
When comparing loans, you should understand the terms used in the loan 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. This is 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 specified in the credit contract.
Generally, you will not be able to make more than the agreed repayments, so you will not be able to 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.
Balloon repayments
Balloon repayments are a lump sum of money paid to a lender at the end of your loan or lease to clear the remainder of your debt.
Usually, loans with a balloon repayment have lower monthly repayments for the term of the loan. Motor vehicle dealerships may provide balloon repayment loans that offer a guaranteed buy-back amount for 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.
Lenders are required to have a designated hardship team to help you come to an arrangement when you are having trouble meeting your obligations.
If you cannot come to an arrangement or you want to complain about your credit contract, you can contact the Credit and Debt Hotline on 1800 007 007.
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 sure 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 and written terms of the deposit. For example, is the deposit refundable if you change your mind?
If you need to have a loan approved first, make sure it is written into the contract that completing the purchase depends on you getting 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 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 NSW Fair Trading.
Leasing
Leasing is another type of finance that may suit people who regularly trade-in their vehicle. Your employer may offer you the option of leasing a vehicle by sacrificing a portion of your salary. This is known as a novated lease.
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.
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 2009.
Cooling off periods when buying from a dealership
A one-day, waivable cooling off period applies to purchases of new and used cars when it is financed by a linked credit arrangement. Linked credit is when finance is provided by or facilitated by the motor dealer selling the vehicle. The cooling off period gives you until 5pm the next business day to change your mind about buying 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 two per cent of the purchase price, whichever is less. (This means two per cent 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:
a sale by a motor dealer to another motor dealer, a financier or a motor vehicle recycler
a sale at a legitimate 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 when 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, 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 and Repairers 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 an 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 purchase 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 ‘cool off’, you are 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 are sure that you intend to buy the vehicle. If you pay a deposit and sign a vehicle purchase order form, you are 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.
Variations and price rises
When you buy a vehicle, you and the motor dealer agree on the price and other terms of the contract. Some contracts allow for variations of the price due to factory increases or variances in currency conversions.
If the vehicle’s price goes up because of a factory increase, the signed order form says that you don’t have to pay the higher price. But the dealer doesn’t have to sell the car at the original order form price. You have the option to either pay 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
Dealer charges, also called ‘delivery’ charges, are costs from the dealer for:
transportation
stock finance
servicing the vehicle prior to delivery.
Statutory charges
These include charges applied by government authorities on the sale or registration of a motor vehicle and include:
the tax and fee payable on registration
motor vehicle duty payable on the certificate of registration of the vehicle
compulsory third party (CTP) insurance
the premium and stamp duty payable on the insurance policy.
Contact NSW Fair Trading
Online: Complaints and enquiries
Phone: 13 32 20 (Monday to Friday, 8:30am-5pm)
In-person: find a service centre