There are a number of ways of going about buying a car, here’s a bit of pre-reading for you. First let’s be clear that the below information is relating to buying a car where there will be no taxable benefit (ie: a car for your personal not business use). If you’re not sure, chat with your accountant and get their best way to go about doing the borrowings.
First thing to remember: – any vehicle you buy will likely go down in value over time, adding excessive interest / financing costs to this only amplifies the overall cost of the vehicle. – the real difference in the way you finance a vehicle relates to speed and interest rate
1. Use cash or redraw from your home loan Pros: Quick and easy, if your cash is in a savings account or in redraw these are two of the lowest interest options to finance a vehicle. Cons: If you need the cash later on it’s hard to add a loan to a vehicle you already own outright later on.
2. Borrowing extra against my home Pros: Home loan interest rates – typically very cheap. Cons: It’s a full application and as such speed is slower, 3-5 weeks approximately with your bank approximately 6-8 if you refinance to another lender (check your time frames for your lender with your broker). Also – if you then take 30 years to pay off the vehicle the benefit of getting the funds at a cheaper interest rate are likely negated. Can be expensive if you don’t have enough equity in your home and have to borrow over 80% of the property’s value.
3. A personal loan Pros: The worst debt for you is often the easiest to get – personal loans are typically easy to get because the interest rate is so high. Speed is usually quick. If you’re buying an older vehicle often times a secured car loan or novated lease may not be an option. Cons: So many! Avoid using a personal loan if you can at all costs. High interest rates.
4. A secured car loan Pros: Mid-range interest rates, can be lower if you own a home, be sure to get a broker to do a comparison with any offer presented to you by a vehicle dealership. Speedy turnaround times. Cons: Watch out for balloon payments that need to be paid at the end of your loan term. Car loans can also significantly impact future finance applications as far as borrowing capacity.
5. A novated lease Pros: Using before tax funds to finance not only the leasing of the vehicle, but also costs associated such as servicing. Typically chatting with your accountant about this type of finance is recommended given the taxation considerations. Cons: Many people view novated leases as effectively “free” when they’re not, they’re also only typically available to employees who can salary package. Be sure to check who owns the vehicle at the end of your lease and any payout figures required at that stage.
Have a chat with your broker and or accountant to discover the best way forward for you.