unsecured personal loan

Or are you? Choosing your car is only part of the exercise. It may be the most satisfying but ultimately you have to put dollars on the table - and that means you’ve also got to work out the most efficient way to pay.

Assuming you don’t have the cash to buy the car outright, you’re going to find yourself in the world of loans and leases. When it comes to dealing with these things, most of us go all glassy-eyed. But if you don’t watch your step you could end up paying more for your car.

Financing options range from the dead simple to the deadly complicated. At one end of the spectrum, you might borrow money through a personal bank loan or draw down some of the equity in your home.At the other end of the spectrum is the realm of salary packaging and novated leases, where issues such as after-tax costs, GST and fringe benefits tax play a part.

No matter which option you choose, there will be a cost. The best option is the one that costs the least.Calculating the cost of a loan is easy. It’s the amount of interest you pay over the term of the loan. An unsecured personal loan now will cost you about 14 per cent a year in interest.

If you borrow, say, $47,200 on a three-year term, your monthly repayments (principal plus interest) will be $1625.48, or $19,500 a year.

Calculating the cost of a lease is less straightforward and it’s even more difficult when the lease forms part of a salary package. The accompanying table shows the eventual after-tax cost can be significantly less than with no packaging. It’s a more tax-effective way of financing.