What is vendor finance and how does it work?

Vendor-finance structures: 'rent-to-buy' (buyer pays rent + a portion accrues toward purchase price), 'instalment contract' (buyer makes scheduled payments over years until balance settled), 'wraparound' (existing mortgage stays + buyer pays vendor extra above the existing payments).

When it's used: buyers who can't qualify for bank finance, sellers who want a higher headline price + recurring income vs lump-sum. Often involves higher interest rates than standard loans + tighter default consequences. Material risk to the buyer if interest rate is uncapped + market shifts.

Tax treatment: complex. CGT timing depends on the structure (instalment contracts can defer CGT to final-payment date; rent-to-buy typically taxes the rent portion as income each year). Stamp duty typically still applies at full purchase price at title transfer (contract date for instalment, final-payment date for some structures).

Practical advice: get specialist legal + tax advice before entering any vendor-finance arrangement. The legal frameworks vary by state and the consumer-protection floor is lower than retail bank lending. AU consumer-credit-code protections may apply but the documentation is often non-standard. Most retail buyers are better served by bank finance unless circumstances are unusual.