Season 1 Episode 8: Why see a Mortgage Broker
IN THIS EPISODE
Mel and Darlene discuss spending on clothing, and the importance of aligning spending to your values. Darlene talks about how upwards of 70% of Australians are now taking out loans via a Mortgage Broker, and touches on best-interest duty and industry regulation, as well as how Mortgage Brokers are paid, how commission works, as well as clawbacks. Mel and Darlene also mention the long-term client relationships and the shift to a more holistic approach to money in the industry. They also discuss purchasing a vehicle through novated lease, finance, or part-finance and go into depth on novated leasing.
RESOURCES IN THIS EPISODE
Get to know your number with our handy Spending Review template.
KEY QUESTION IN THIS EPISODE
Should I take out a novated lease?
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0:00
Welcome to the Money Collective Podcast. We're here to uplift your financial wellbeing. Your hosts are me, Mel Pearce and Darlene Neu. We are the cofounders of The Money Collective and together we have over 50 years of finance and banking experience. We provide the tools, information and guidance to better understand your money and feel confident making money decisions.
0:22
Hello. Hello. Welcome to Episode 8. How you doing, Darlene? I'm great. Thank you. That's good.
0:30
Yeah. So episode 8. Lots of things to talk about today,
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but first of all, let's talk about our truth today. Let's talk about clothes. Ohhhhh. It's very triggering. I just think clothes is the thing that is my vice, right? So I don't drink very much. I don't smoke. I save it all. I don't go eating out.
0:58
How big is the wardrobe? Why should be should be doing a roving? Yeah. You can actually see my wardroom. Yeah, yeah, I absolutely. Yeah. So yeah, that's why it is triggering. I do like the idea of you know, clothes and colour and stuff so I enjoy it. But then why you worried about it? Yeah, well I just have too much. It's just and what are you really wear in your wardrobe? You wear the smallest amount.
1:26
Nothing about you. Yeah. What? I don't know. You have 6, 10 outfits. I don't know. And I just totally, I wear the same things all the time. Yes. That's how the brain works, I reckon. OK. You know, And then that's enough. You know, I like lots of choice, good health when I get sick of whatever I'm wearing or it gets worn out or I've got too many stains on it. Something like that, Yeah. And it has to go. Yep. So, you know, see how much, you know, how much money in the discretionary budget spending on clothes. And does that mean
1:57
what is your trade off as well? Like, you know, yeah, you know, so, you know, if you're spending 10,000 a year on clothes, that means that 10,000's not going maybe towards something else that you might value more. So that is the question, you know, Yeah. Yeah. Well, yes, clothing. So we've got lots of things that are coming up for us as a business. So we're out and about a lot. We're actually going to an awards night tonight because we got, we're finalists
2:28
in our local Business Awards. That's right, the professionals award for our council services for. That's right in the Maroondah catchment area. That's it. So we're heading off to night. Have you got an outfit? Ohhhhh. So it was like cause I just didn't really wanna think about what to wear and they're calling it a gala event right. So when you call something a gala event what do you think? Sequins, long dresses. I take my leave from you cause I remember when you took me to a black tie event and I didn't
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understand what black tie was and I regret that.
3:05
I wore this cheap little short dress made out of suede material with stockings underneath oh it was horrendous and everyone had ball comes on and I like it was like I'm…OK. So my god Mel. I don't remember the outfit. It was washed over me. It's probably 40 bucks. Yeah. And this is the thing actually that's a really relevant point because when I think about clothes I’m wearing yeah. I mean, I suppose you do sometimes look at somebody in my what they've gone on. But most of the time it's
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not. Maybe. I don't know. Oh, yeah. You know, it's a good question. I do walk around the shops going oh, she's looking good, you know. You know, you too. I do. I'm a judges. We’re lying if we don't judge. Yeah. It's true. We judge you. Yeah, we do a bit. Yeah. So yes. So no, no, I've decided. So the beginning on the weekend about Sunday, I started to think about it and I thought, oh, what am I gonna do now? It's all too hard. So then I started, you know, obviously worked this week and I thought, oh, I forget time I might go and look for something. But then actually I think
4:06
by talking to the team and I thought, no, I'm not going to do that, hadn't even crossed my mind to go and do that. But what are you wearing? And then I go, what have I got? No, hang on, what is like mine? That is a problem. My catalogue of dresses is in a size that I no longer am. Yes, that's a problem. You know, that's. I think that's a lot of the reason we don't also want to look because you know, at the moment I I'm also, you know more than I've ever weighed and I don't want to go and buy a new wardrobe,
4:38
want to get back into the old wardrobe, right? Cause really if you dig deep this is really the problem anyway. So I thought no, I can make do. I've let go of those hopes and dreams,
4:51
so I'm keeping them for friends and children. Mind you, I did have a win the other day. My daughter Lily, she is got her Grade 6 graduation coming up and first of all, I'm much older than her and she always thinks I'm really old. So I was super surprised and excited about this. I had an old, you know, space bag full of dresses and she was mentioning what she might wanna wear and I thought I might have a dress like that. So anyway, open up space bag went through the dresses. She didn't pick that one. She
5:21
picked another one that I'd never worn but I could fit into five years ago. And she decided she really liked it. And she's gonna wear that, which is. Yeah. Anyway, that blows my mind. Anyway, so, you know, my daughter, it blows my mind. So yeah, that was a bit of a win. I didn't have to go out and spend a lot of money on, you know, grade sixes. You feel like you should have to spend the money. But time, you buy shoes, do hair, makeup, you know, dress. That's up. Right. So that was a little wind.
5:53
Um. Anyway. But tonight. No, I I have thought about what I could wear. And I'm just wondering, like a cocktail short, you know, Out of wardrobe. Yes. Out of the wardrobe. Out of the wardrobe. Out of the wardrobe. So it was a win. And yeah, we've got that. It's this time of the year, you know, we've got things coming up. So no, I don't plan to buy anything. Do you want to know what? What? I bought something.
6:17
Because I got the gist when I talked to you on Monday. That was my inspiration to go to the wardrobe. I see what I've done to you mind games. But I bought it from an op-shop. Oh. I love up shopping and I haven't done this yet, but I really want to. So me and my daughter Tilly, which we both love, opt shopping. It is a passion of ours and Oh my God, she's I love her so much. We're going through the racks. We went to Savers Ringwood first cause that's a really good goody. Anyone who's lives in our area we're going through the racks and we're like
6:49
that I give you trolleys. So we did we so we do love our clothes as well. Alright. Loaded it up and she's like what do you want how much And we spend 80 bucks a for trolley load worth of clothes. Oh my God it was so good. And we're like she's like how much do you think this was. And I'm and we're like it's got to be close to $2000 like if you bought all new wow stuff and I was so you know so I've had a few new shirts out this week And then
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we after that we went to another op shop because we we've because we've got some corporate things coming up And I have been so struggling cause Darlene has said to me Mel, maybe we might need to present a little bit more pleasingly and to corporate. Yes and play the part a little and I'm not very good at playing the part nowadays cause you have shaken it out of me and now I'm having to go back. Shouldn’t have to. It's against our value stream. But we also want to get in
7:51
the door. That's it. So anyway, I thought, let's go to like a fancy area. I might get some nice shirts and things and that's where I picked up. So you'll see it tonight. And if you follow our socials, we might get a photo of what we're wearing. But I've got a shimmery black sequin top ten salon. What I've got is like, I don't know what they're called, but it's like pleated black. Nice, like they're ruffles, clots, but it looks like a skirt type thing, you know, it's like a jumpsuit. This is not a jumpsuit. No, no, it's a top and a bottom
8:21
and some shoes I dug out of the cupboard. So that's what I'm wearing. Good. Yeah. But I mean, like off shop op shopping is really the thing, right? It's great. So I've been talking about getting. She's been talking about coming. She thinks it's great. And I do love it. I love the idea. I just love the idea. She just hasn't done it. This is great. I'm like, so glad that we're gonna go through this journey together and this podcast one day. Yep, that'll be another one. We could do a live podcast from the op-shop. I love it. Ohk let's do that.
8:53
And this is another thing that I like about the op-shop because and we're doing something because you're not following trends in that when you go in there and it's this vision for yourself again, you've gotta be true to yourself and go, well hang on, what's my style? Cause you can find some really funky stuff in there where you kinda gotta go, well I'm gonna own it. Like that's it, you know. And it's not just stock standard of what's in fashion. So you're either going back in fashion or being a weedy poo
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or just being you, which is. Well, yeah, it sounds fun. Yeah. Anyway, yeah, no, that sounds really cool. And you know, yeah, it's all about life values, where you wanna spend your money and yes, I hope you got something out of that and you can save some cash. Yeah, that sounds. I'd like that. So many. Exact. Anyway, other than us loving financial wellbeing clothes and makeup, we are also mortgage brokers. We are mortgage brokers. And that's been a journey for us too. Ohhhhh. Yes,
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hasn't it. It has and we realised that we weren't even proud of being mortgage brokers because we thought we were used car salesman. Look this is the thing actually I am on a so the mortgage finance of Australia is like our industry association, we call it the MFAA, it’s our leading body in Australia for mortgage brokers it is so you're like part of the industry association and they advocate and support you know us. Yeah. And as a as an industry, yeah, yeah. So I
10:24
am on the committee for the Victorian arm and you know to represent brokers and and we are just trying to actually work through what our charter should be, our new charter, and it really is helping people understand the value of brokers and lifting brokers up. So the purpose that's being put out there and consistently is that we want to lift
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lift the that view of what brokers are up. I feel bad because we're using the used car salesman. They might like stuff as well. That's right. Sorry to the used car salesmen, we love you guys. But mortgage brokers are in that, you know, that feeling of, you know what, just trying to say something transactional. Oh, they don't care. They might not even answer my phone call or. Yeah, yeah, yeah, that's right. With, you know, really the agenda of lining their pockets.
11:22
That's right. They all the all the mortgage brokers make a lot of money, which is not so much the case nowadays. It's definitely tough. That's right. Well, to be in in that case. But yeah, I would say I have been in the mortgage broking industry for the last 20 years and I've seen it change and grow. And I'm really proud to be in here. And that's even hard for me to say. Like, I can feel that in my body. Yeah. Am I telling the truth? You know what I mean? Because I probably would never have chosen
11:54
that to be an occupation to go right. I'm going to be a mortgage broker. I’ve known Mel, for a very long time. And that I feel, is one of the most truest things I've heard her say about this before. So it feels true, Yes, that I and so I've just done it. But then I now believe that
12:16
we can bring passion and ourselves to any occupation and helping people in our way and how we can connect is so important. And the way that we do mortgage broking too is not in that transactional sense. I think it's more feminine again because we have people who look at us and go, well, why would you do it like that? Why it's just in and out? It's about the numbers. And we're like, it's all about the people.
12:44
Totally about the people. Yeah. And we're not here to, like, perpetually keep you in debt. We wanna see you get out of it. We wanna lift you up. We want to educate you. And I think the mortgage broking industry does do that very well. Extremely, Yeah, It's come a long way. Not just us,
13:03
Yeah. So from a mortgage broking perspective over the last few years that has gone through a massive transformation. 70% of Australians go through a mortgage broker now versus going to the bank, going to a bank directly, you know for finance. So that is huge. You know gosh, I remember when I first started and I've been in banking and finance and you know done this and mortgage broking you know for 30 odd years. And
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when I first started those numbers you know were very, very low. You know 20-25 I remember when I worked in a major bank and you know I got to 30 and they said that was like the strategy, 30% from brokers, 30% from the branch and 30% you know through digital ways. That was their goal and they could not hold that 30% down and it grew and grew and grew and it got to 50 and then they were really quite concerned and then it's just continued to grow and now it's 70%. So the reason it's moved
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is because brokers have to abide. A couple of years ago
14:11
there was a regulation that's been introduced to protect consumers and that means it's called best interest duty. And what that means is if you come to a broker, they have to by law give you choices. They have to not just say we're going to this bank with this interest rate. They have to give you comparisons and they have to you know why and why this is the best option for you. And beyond that they have to act in your best interest. They have to understand your
14:42
situation, why you want what you need and help providing guy give you guidance and make sure that they're the loan that they're giving you is in your best interest. And banks don't have this law. So legally we have to act in your best interest. The banks do not have to. And in fact, I work for a bank as well and we had several products. So first of all, somebody walks in the front door, you're obviously only getting what that bank has on offer. But we were only selling one product even though we had several,
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there's only one. We'd only give you the one that had the fees and I had a script they gave me the words that I said to people to tell them why. So the banks don't have these same obligations that go into and they don't have all the choices of all the other banks. They don't have to care about you and they have KPI's and they have to do sales and yeah, to hit targets. That's right. And also think
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you know people basically the way brokers get paid is a contributor. So you know it might be worth us talking a little bit about great for help people understand. So I think through you know these podcasts and ongoing if we can help you understand you know some of the benefits and some of the facts you can make your own, you know choices basically. But the way brokers get paid is we get paid by the bank that we introduce the
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loan to. Now most banks across Australia offer very similar commissions. So there's a myth out there that brokers send a deal to a bank where they're getting the highest Commission, that gosh,
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it is just not reality. It is not how it works. The most important thing that brokers are trying to do is place you because it's not just about the product and the interest rate that you're going to get. Mostly it's about your personal circumstances and the policies then where you might meet them to give you then your best choices. So because every bank has got different rules, so if we think about your situation, you can't get a loan from maybe all the banks, maybe there's only one or two. So it's your mortgage broker who knows.
17:02
We have accreditations with all the banks so we know their rules and guidelines and we have access to all of that information to work out whether they'll lend you the money and how much you would qualify for. So we consider all of those things to choose where or recommend make a recommendation. I don't even know what the differences are in Commission between all the banks, not interested, it's just not front of mind you know and they are all are very similar. So basically point sending you somewhere with the highest Commission if the loans never gonna get approved or
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also it's illegal for us to not act in your best interest. It's just it's just not how it works. It really is trying to place a customer into the best product that meets their needs.
17:45
So you know that that's really reality. And a mortgage broker obviously as Mel said, the key difference is has lots and lots of banks they can go to. I think our panel would be between 50 and 60 lenders and that's just for home loans. So there's lots and lots of options out there and a broker will be well versed or more versed or being able to find out all those options available to you and then compare which options through software programmes that they use. So coming back to how we're paid. So wherever we refer a loan to,
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they pay us what's called an upfront payment. So we introduce the loan, we do the work, we get an approval and the bank gives once it settles and draws down, which means that you know that your money got the debt and yet the money and now you have to make repayments. Then the bank give us a payment and it's on average about 0.6% of the loan amount, but it is net of offset. What does that mean, Mel? It means it's their balance that you we only get paid on the balance
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through the bank. So if you have borrowed more money than what you needed, and you haven't used that money yet, then we don't get paid on the total loan limit that we wrote you. So there's no benefit for us to lend. Recommend you taking out $1,000,000 when you only need 500,000? Yeah, so we only get paid on the amount that you use,
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and they do recalculate that from time to time. So sometimes people need to take out more money
19:16
and then they use it down the track. But it may mean that we may or may not get paid for that usage or uptake. That's that. That's right. And I was putting always your best interests at heart. Sometimes you might take out extra and you might see it in your redraw, you know, for later or a rainy day or a future purpose or you know, offset. So yeah, we don't get paid on that amount. It's just the net debt amount that we get paid on. But it also means that sometimes we have done the work and we don't get paid. You know
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if somebody doesn't use the money then we're have done all of, and people just think that we're being paid thousands of dollars. And it also what happens is if you refinance your loan, we within the first two years we actually pay money back. So within the first 12 months we pay any full commissions back. So if you only keep your loan or you change banks within 12 months, we've actually been paid nothing and we pay the money back for the work that we did to get that original loan, so.
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That's really important and that's actually a very hard for mortgage brokers to manage at the moment because we've been in a environment where people banks are offering cash back offers, so paying customers to actually change and switch banks all the time. So the brokers have to act in your best interest and if it's in your best interest to move, they have to refinance you. But they're not being paid every single time that you that, only essentially being paid once to do the work several times and that has really impacted the mortgage broking industry.
20:48
Um yeah, I would say financially over the last few years, definitely, yeah. I mean you know there are 30,000 mortgage brokers in Australia, but a lot of people, you know just work from home, you know, on their own And you know in some of these times they, you know it's pretty hard to make ends meet at all whether not you can do and usually we're working with the client. The lead in time from an inquiry to a settlement is 3 to six months.
21:19
So the payday is a very long lead. So mortgage brokers need to have cash flow to be able to manage their business and then be able to manage their cash flow as well. If those clawbacks is what we, when we have to pay the money back to the banks, is there. So there's definitely peaks and troughs. And it's not all it's. They're the things that we manage behind the scenes. Yeah. So to mitigate that, yeah, we actually charge all of our clients a $600.00 application fee. So $660
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when we login application, it doesn't matter what it's for. So that we can provide our clients with a continuity of service, so that we've got more continuity of income to cover those events. But it also allows us to provide a constructive service. Yeah. So yeah, our team, we've gotta. Who have we got in our team? Yeah, we've got, Yeah, we've got, We've got Simone. I'm gonna name them because we're people. People. Yeah, got Simone and we've got Lisa
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and we've got Wina and Miranda and Angela and Peter. Yes and us. Yes. So a team of people that, you know, make everything go around and get things done. So there is a lot of, you know, stuff that has to happen behind the scenes. And yeah, it's really helpful, you know to work with a wonderful team. So yeah, the other thing we haven't talked about is we also receive trail Commission. And what
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trail Commission is, is it's a percentage of your loan and on average I'm gonna say it's 0.15%. So at the end of every month all the loans that we've written, they're all added up. Say times are gonna, it's not exact. Each bank is different. But say .15% of that balance and then we get you know times by 12 divided by that month. And we get a payment. We get an incremental payment based on the, the accumulative balance of all the loans
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we’ve ever written. The current balance of the bank at the end of the month will go right. The current balance is this will pay you a small amount for each loan and we get a and that gives us more continuity as well through because we're getting a payment monthly as well based on our loans. Yeah. So we like to keep our customers too. We do that's incentive for brokers and your broker to look after you and to give you good service. So you, you know you keep coming back to you obviously. Yeah. We like in broker terms,
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call it a loan book. And so that's full of all the clients that we've ever served. And we love, like the people who are in there are important to us. So we want them filled with the most amazing people. And if you're in there, you're the most amazing people. We love talking to them. Yeah. And like part of their money lives because this is where we discovered through you know mortgage broking has been, you know, you know our core work, you know through much of our life and through banks and then mortgage broking.
24:24
And this is you know just by saying that mortgage brokers have many of them have lots of experience, you will get some new to industry but sometimes there are people that have worked in finance and have you know landed in mortgage broking. But This is why we've developed financial wellbeing, you know as an added on service. And it's really, really important to us because when you work with people around loans you have to be really vulnerable and you have to give all your information to a mortgage broker and you want
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and you really start to trust them and you know they're you know they're doing the right thing by you're gonna really build a relationship. So what happens and we found over time is people wanna talk about their money and you can see the you know just by the chats and you know how they come and ask for advice and what I should do. Like it is a true money relationship probably similar in the old days to what you would have with an accountant or potentially a financial planner. But mortgage brokers are really in that remit because they work with people and their
25:25
their loan needs. We’ve got a duty of care to these people who are sharing their stories with us. And that's what I found it hard to be transactional mortgage broker when you're just doing mortgage broking because there's no space or time in that to help people in a really substantial way. And that's why we started the Money Collective 4 years ago. Really this business is to solve for that and to add in that additional service of the premium one on one coaching for people. That's right. And help people understand all the things that they can do to uplift their financial
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wellbeing. Um, yeah, because that's, you know, obviously more impactful, more purposeful. We can really, you know, make a difference with our clients over time. Yeah. And that is really, you know why? Why we have introduced our administration fee. Yeah. So we can really serve the person. We don't, we don't buy business from different referrers. We don't give any cuts away to anybody else. We just wanna purely serve the person that we're working with
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and make sure it's always best interests at heart. There's no conflicts with anybody else, you know in other services, you know, Yeah. So I think that's also a really important thing. So we don't pay Commission to any other source. We don't take Commission from any other you know people that refer us and this is a Money Collective thing. So other that's not to say other businesses don't do that or it's against the law to do that. We have just decided as a business not to do that so that we're not tainted because if we're for example if a an accountant
27:00
is giving us umm we call them leads which is terrible – a new client you know comes our way.
27:09
So because it becomes very transactional then because then you're just trying to keep the accountant happy, you know and look after their client and make sure you do a deal for them rather than purely and only serve the best interests of that person because they cause then we would hope we were accepting commissions. We would have two clients really we would have the customer we're trying to do a home loan for and the accountant who we're paying as well. So because they'll give us more business, more new clients cause. So if we look after the client they've given us, are they gonna give us more
27:40
after that. Yeah. So we really don't wanna be playing in that space. That's right. And for you, what value it is, it is really making sure that you know if you're working with the broker, ask those questions of a broker, you know, like are they, you know, if your accountant for example, has referred you to this broker, what are they paying the accountant for that? Are they serving your interests or the accountants interests because you want them working for you and because it does taint the relationship legally now it has to all
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be disclosed. So it will be in the paperwork that's sent out to you too. Should be. Yeah,
28:16
right. That's right. Yeah. Yeah. And I would, yeah. Yeah. And I touched on before I'd say the value of you know, so if I can summarise the value of brokers,
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you know check their background, their knowledge and how much they've you've done it for sure, but you can get some very experienced and knowledgeable and lateral thinking brokers. So that's really key. So experience, I'd say #1. The choice in banks is #2. And we've talked about already they by law that they have to do the right thing by you. Otherwise you've got recourse. And, ongoing service. I love that people
28:57
can keep coming back to us and go, we've got the same person because we're a small business. So it's not like you're gonna go back into the bank and it's a different staff member or a different. Yeah, somebody who doesn't know your story. And that's what I think motivates me to stay. Yeah. Like really helping and seeing people's stories, helping people buy their first homes like that might take them three or four years to actually get them in a position. Right. Especially self-employed people. And then watch them have children, well not literally.
29:27
Yeah. But um And by their second house. By an investment property. Like those stories are amazing. They are. And being, I really feel part of their journey. Oh yeah. But you know when people say to me, Mel, I couldn't have done this without you. This is amazing. Feels good doesn’t it. Thank you. Yeah. That's right. And being that person that somebody leans on makes it does it makes you know me feel good. And it's definitely not cause our philosophy is we wouldn't tell anybody what to do, but we'll help them
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you know provide the information to help them make the decisions you know so it is and like you said knowing that people it's like the old fashioned bank manager years ago, you know where somebody knows your risk tolerance, you know what you care about, all the things. So you know once you've done that once it makes those future transactions in the future things you need much. So being honest with your mortgage broker makes our job so much easier. So if you come and put everything on the table, don't hide anything that you're worried.
30:30
Yeah, because it will come out in the end. But if you're up front about it, then we can go to the right solution in the first time rather than. And we're in your court, you know. Yeah. Yeah, absolutely. And I think that's the risk. You go to a bank and you're like, I know that people just tell them what they want to hear because it's gonna get their loan approved or whatever, which may or may not work out for you. But by going to a mortgage broker, you can really be honest about somebody helping you through whatever the situation is to get to the right outcome. Yeah, that's right.
31:01
I, no, I can rate it. And now more and more brokers are also you know looking at this financial education and you know things like that. So yeah, really looking at it more holistically than just doing alone anyway. So, yeah. So if you haven't used a mortgage broker before then call us. Yeah, we'd love to hear from you or any mortgage broker that's amazing like us. Definitely. That's right. Alright. Well, the question of the day, yes, is should I
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take out a novated lease? I had a client
31:35
this week, an existing customer of mine actually contacted me and said we need a new car. Should I take out a novated lease, and Mel how would you tackle that?
31:47
That's a loaded question and so can they afford it would be the best thing. But first question that I would ask because I think people think novated leases are some magical way of buying a car that's going to be cheap or not cost them anything. Because if it's salary packaged through your employer, I'm gonna, I'm gonna stop you just for a minute. What is a novated lease? Oht. Great question. And novated lease is buying a car through novated lease company. Yeah, usually through salary packaging at work, through your employer.
32:18
So they will provide you a car, You sign up for the lease, you get to choose a car, and then that car will come with costs. And the renovated lease company will manage the entire running cost of the car, including the insurances, the petrol costs. So you'll get a fuel card, the maintenance, the servicing on the car
32:43
and the finance of the car, so the actual cost of the car. So they'll be, they'll be two components in a novated lease. The first component will be the running costs of the vehicle, which they estimate out which you need to pay monthly and also the financing cost of the car, which you pay together at monthly as well. So they add it all up and there's a monthly cost. And then some of that is you can pay from the tax, your tax free salary. So they'll work out that a percentage
33:14
gonna be paid tax free before you pay tax on your salary and the rest comes out of your after tax salary. Alright, so when people hear the word tax free,
33:28
well, I don't know, go bonkers and think that they're getting an awesome deal that this, that they get something for free. They're still paying interest on the on the car.
33:38
It does my head in like seriously, you're not getting anything for free and you're paying for the entire thing and these people are making money out of you, OK, And it might be easy and convenient cause you think you're doing it through work and you're getting something tax free. But seriously, the answer that I would say going back originally is can you afford it? That's right. And so the very first thing I did with these clients, I sent them a spending plan template which is on our website. And understand your income minus your expenses
34:09
now. So what's the position now? And then you can work out what's leftover when you cash flow and then what actually have you got to work with. That's the number one thing to start with, can I afford the car? And then obviously the next thing is you can. You can also finance cars in different ways, not just a novated lease. Yeah. So the second thing with these people though, they had some savings in the bank. So having savings in the bank, you could use your savings.
34:40
So they picked out a car they liked, but they didn't quite have enough savings and they didn't want to use all their savings because then they wouldn't have any emergency money. So that made sense. So where we landed, because what type of finance you choose is also a good question around that, because if you're financing the whole car you might get an interest rate deal that will look better than if you wanna put some money in and only finance part. The same novated lease is possibly not the best answer when you're putting some of your money in.
35:12
And if you can put any money against personal car they're using for personal use means you're going to pay less interest. So that is always a good thing and your repayments will be less. Yeah. Yeah, correct. So we did part-part. So we ruled out because we were gonna put part in, we ruled out novated lease in that case. And then we were looking at what is the cheapest way to fund the difference. So
35:36
because it was part and it wasn't the whole of the car cause the car yards or what we call asset finance companies will finance the loan and take a charge over the vehicle. So this is different to a note at lease, you're just talking about getting getting a car loan, getting a car loan, yeah. So you can do that through car finance companies. And then the other way is to go to a bank and ask for a personal loan. That's it and the bank can do it or an asset company. But at the end of the day, you're paying the loan repayments and then you are responsible for your
36:06
own running and, you own the car. The car is in your name. You've got a loan that you have to pay back and you pay for all the registration and maintenance of the car yourself, cause it's your car. But in a novated lease, you don't own the car. The asset, the leasing company owns the car until you decide what. Yeah, what happened? Because that's a whole other thing. What happens at the end of the lease, you gotta know those things too. So usually there's a balloon payment on there too. So I was looking at one yesterday and the total cost, running cost of the vehicle was $1500,
36:37
it was a month. They're paying the leasing company and they're still a balloon payment at the end. So what the leasing company wants you to do is change your car over and enter into another lease. Yeah, that's why they do it. Exactly. So you've got to look at all these terms and conditions are signing up for the scenario beyond the tax free portion. That's right. And even do the number crunching. So yeah, I often say to people from the cash flow compare your repayments. So apples with apples we can car finance the regulations not quite the same as home finance. So, you know, look, there is no regulation
37:08
it’s unregulated. So look at your current your repayment. So if you're preparing, what? Sorry, I'm pausing here on unregulated. Yeah, I don't need to tell you, this is not laws. Yeah, We've just, in this podcast told you about best interest duty and mortgage Broking is one of the most heavily regulated industries. We can't say Boo without writing it down. Definitely. Car. Yeah. Car lending is unregulated. Yes. Yes, there are some loose rules. Yeah, it's a lot looser. They don't. And working out whether you can afford the car is
37:38
generally not part of the process of lending you the money. Yeah, yeah, yeah. So yeah. But you do wanna do your due diligence and see what your best style of finance or a combination of finance and savings or all savings is the best option for you. And you need to understand the terms and conditions of what you're trying to use. So novated lease. The second thing you would do after you understand your money is you would go and understand the terms and rules. And then you would compare each option by looking at
38:09
payments and also doing your number crunching on what you might be saving. A little bit of tax. There could be some tax saving. This might be beyond you, right? It's very complicated. Can you tell? But we love this stuff. OK you might need to call us or somebody who knows about this stuff to get advice from somebody who's actually going to tell you the truth. And I would not be relying on that being the car dealership. No. And it's not one size fits all your personal situation. Being nice to car dealerships in this episode? No, no. That’s maybe because our experience hasn’t been great. No,
38:40
we have shared a previous experience of that the last car we bought. Anyway, yes, we like talking about that. Yeah, that's very interesting. So it is complex. You need to do some work. 2 numbers Don't sign up to think. Thinking it's gonna be all shiny and rosie cause everything has a consequence.
39:00
And now we are the last episode for the season. So episode 8. It's been a short one, but a good one. We've loved it. Yeah. I hope you love it as much. And we're already working out what we're doing for season 2. But we're gonna have a short break and then come back to you. So yeah, stay tuned on our socials. Download any of the tools and resources that we've got available. Reach out. Message us. We'd love to hear from. Yeah. Feedback is a gift. So we'd love to hear your thoughts, what you wanna hear
39:30
about what you liked, what you haven't liked. And if you have a question, maybe we can your question right here. Yes, please. Yeah, that's right. Thanks for listening. If you haven't listened to all of them, but you, you know, liked what you've heard and some of them or this one, go back and listen to some of the others. Cool. Alright, thanks guys. See you next time. Bye.
39:53
At The Money Collective we provide financial wellbeing premium coaching, mortgage broking and workplace financial wellbeing programs which we couldn't do without the seamless support of our fabulous team. If you'd like to find out more, head to themoneycollective.com.au or our socials to take action and engage our services. In our Facebook group, join the conversation and help us break down the taboo around money. All content in this podcast is for educational purposes only and is general in nature. For tailored personal advice, please seek out a professional.
This podcast provides general advice only. It does not take into account your objectives, financial situation or needs. Before acting on any information provided, you should consider the appropriateness of the information and the nature of the financial product in regards to your objectives, financial situation and needs. We recommend discussing your personal situation with a financial professional.
Podcast by:
MEL PEARCE & DARLENE NEU
Co-Founders, Financial Wellbeing Coaches and Mortgage Brokers
The Money Collective
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