April 02, 2019 by Matthew Todd
It’s time to buy a new car. You have a home loan so perhaps it’s best to just top it up rather than take some more expensive car finance.
Ignoring any fees, borrowing $40,000 against your home at 4% and paying it off over a remaining loan term of 25 years will cost over $63,000. Borrowing the same $40,000 as a car loan at 8% and paying it off over 5 years will cost just under $49,000.
Car finance also has the benefit that it can be arranged very quickly. It can be used for new and used vehicles, but there are limits to the vehicle age that might limit the number of years financed.
However, a home loan top up may be better if you have time to get the finance pre-arranged. Applying for the finance is just like any other home loan application, and will take some weeks before funds become available. But if you structure repayments to repay all of the loan over 5 years at 4%, it will cost you near $44,000, less than either of the above options.
The only time paying off a car loan over 25 years makes any sense is when you absolutely must keep the monthly repayments down. Using the above example, repayments would be $211 per month, whereas the car finance would be $811 per month and the 5-year home loan top repayments would be $737 per month. But who wants to still be paying for a car long after it’s gone to the great garage in the sky?
Talk to us for further information about how to fund a car purchase for your situation.
