Best way to borrow for a car?

[Delilah]

I know the best way is not to borrow at all

The thing is, we desperately need a new vehicle. Hubby does long drives and needs a comfy, reliable vehicle. We also do plenty of camping on our time off. So we need to replace our 4wd with another one. So looking at 20k, probably on the cheaper side. We are 6 months out from owning our home. So we thought maybe we could redraw and buy a vehicle outright. This would then mean we won't own our home in 6 mths time. Still not grim though it would then probably take us a year.

I read in a McKnight book how he just buys a new home and vehicle at the same time. So his car and IP are lumped together and he finds a cash flow property which covers the two. So how does this work with the banks? Especially if you are borrowing, I don't know, 120% of its value?

We would prefer to get rid of the mortgage repayment asap. Though while we would have a much smaller mthly repayment on the car (if we had a car loan) we'd have a higher interest rate right? I haven't even looked around but I'm assuming car loan interest rates are still higher than home loan interest rates?

 

[Aaron_C]

Are you self employed or PAYG? If self employed you can get a business car loan for about 6.6% which is really cheap. Generally speaking it is better to owe more money on the car than on your home since you can always use your home to get money out cheaply - personal car loan finance can be much more expensive.

 

[Ideo]

The cheapest car loan I have seen is around 10% for a secured loan.

Can he do a novated lease through work?

 

[wobbycarly]

And you need to consider the loan term.

6% (home loan) over 30 years, will probably be more expensive than a 5yr car loan at 10%. Unless you pay it off quickly, of course.

 

[Peter_Tersteeg]

The cheapest way to borrow for a car is to redraw from your mortage, will currently cost abou 6%.

wobbycarly is correct however, most people just continue to make the minimum repayments and thus pay a 5 year car loan over 30 years and it continues to cost them long after the car is scrapped.

A car loan of $20k at 10% over 5 years would cost $424 per month. I'd suggest you take the money from your redraw, but increase your minimum payments by $500 per month. It'll take another year or two to own the house, but you'll own the car sooner too.

After you've paid off all this debt, consider continuing to put $500 a month into a savings account (should be easy without a mortgage), so next time you need a new car, you've got cash.

 

[JIT]

Are you self employed or PAYG? If self employed you can get a business car loan for about 6.6% which is really cheap. Generally speaking it is better to owe more money on the car than on your home since you can always use your home to get money out cheaply - personal car loan finance can be much more expensive.

Aaron, which lender gives you this rate?

 

[boomtown]

I find the idea of a redraw to pay for a depreciating asset so repulsive I would never do it.

 

[BayView]

We recently bought another car (Toyota Kluger) with a 6.5% rate - this was through an industry lending division though.

Otherwise; as others have said; through your home redraw if you can.

I find the idea of a redraw to pay for a depreciating asset so repulsive I would never do it.

In a perfect world...

The reality is most folk can't pay that sort of cash for a car, so borrowing is the norm. May as well do it as cheaply as possible.

I think in their case with the house almost off the books, it's not such a bad thing in the overall scheme.

I would advise not to make a habit of it.

 

[Edmond Dantes]

The cheapest car loan I have seen is around 10% for a secured loan.

8.5 with IMB

http://www.imb.com.au/personal-personal-aamp-car-loans-solutions-for-buying-a-new-car-2.html

 

[Propertunity]

I find the idea of a redraw to pay for a depreciating asset so repulsive I would never do it.

I find the idea of paying saved or borrowed money for a depreciating asset repulsive too - yet I do it, but only because I consider cars to be a necessary evil.

 

[S.T]

Another option if you're looking to buy new, is alot of manufacturers offer very low rates for finance through them. Here's an example with some 4WD's on offer through Nissan, 1% finance?!

http://www.nissan.com.au/webpages/offers/nissan_offers.htm

 

[Aaron_C]

Aaron, which lender gives you this rate?

Bank of Queensland. Only for business finance though and chattel mortgage.

 

[tobe]

the issue with car finance is, if you borrow on the car, the repayments are P&I over 5 years (even if there is a balloon at the end), which impacts on your servieability for any new investment purchases in the meantime, as the home loan lender needs to allow for the car loan repayments.

If you borrow from the house, the rate is lower, and the repayments are also lower (either interest only or a 30 year term) however the car loan amount eats into the equity you had available for the next purcase, so you have less deposit which may hold up your investment strategy.

its a choice between 2 evils.

Note, the car loans with crazy low rates through dealer, or car manufacturers are generally to do with a loaded price. thats how they afford to do it cheaper. Ive been told the best way to buy a car is through a car buying service.

 

[Aaron_C]

Yes Card Yards generally have the best rates/terms because it is their bread and butter.

 

[Delilah]

I find the idea of a redraw to pay for a depreciating asset so repulsive I would never do it.

So do you save for a vehicle? In the meantime that money isn't going into a home. It is evil I know but we purchased our current car before we took out our home loan, so we have been travelling well really. Hubby has repaired it numerous times himself and replaced engine and gearbox, just so we could keep plugging away at the ppor loan.

the issue with car finance is, if you borrow on the car, the repayments are P&I over 5 years (even if there is a balloon at the end), which impacts on your servieability for any new investment purchases in the meantime, as the home loan lender needs to allow for the car loan repayments.

Oh yes didn't think of this issue too.

Thanks everyone for your replies. I appreciate it. will re-read to hubby and have a think.

 

[Delilah]

Araron we are PAYG. Ideo yes looked into lease options with work. No go.

We have the ability to repay it very quickly. Just saving us another years wait for a vehicle we really need now. So want to own the house though, the thought of putting it off for another year is terrible. It's within our grasp now. Feels bloody good too.

 

[boomtown]

Araron we are PAYG. Ideo yes looked into lease options with work. No go.

We have the ability to repay it very quickly. Just saving us another years wait for a vehicle we really need now. So want to own the house though, the thought of putting it off for another year is terrible. It's within our grasp now. Feels bloody good too.

Why do you actually need the new vehicle now if you can save so fast? I drive a 2004 sedan long ago paid off and rent a 4x4 when the need strikes us. Much much cheaper. Easy enough to rent a cheap Troopy to do Fraser or the Outback or fly to the snow and just get a crappy Hyundai Tucson 4x4 and wring its neck on the road up to Treble Cone.

The depreciation and running costs on a full size 4x4 per year would easily buy you another IP. Dunno maybe your hubby is buying a Suzuki Jimmy (which is a fine 4x4 btw) but I doubt it. He sounds like he wants a 2007 Patrol or something like that for 20k.

 

[Delilah]

Because we don't think it will make it to Xmas without major repairs let alone another year. 4 x 4 keep their value really well. It's probably one of the better vehicles to buy in regards to depreciation.

 

[Aaron_C]

If you are PAYG then you can get finance for the car, then just make higher voluntary repayments into it. Don't get caught up in the 'never ever borrow for a depreciating asset' stuff - there is more to life than just pure numbers.

 

[BMan]

if you need the car get it now especially if you can pay it off quickly like you said it will only cost you a grand or so in interest
my GF purchased a car as hers was falling apart just got a LOC over her house (ip) and is paying everything into that until its paid off then the LOC can then be used for investment purposes