Peasy… Porsche Easy? - Peasy

Peasy… Porsche Easy?

Did you know that you can use your home loan to buy a new car?

If you have been in your home for a while, you likely would have built up some home equity and you may be able to use this to provide low-interest funds for a new car purchase.  As attractive and easy as this may seem, I would recommend you do the numbers first to get a long-term estimate of the total interest you will be paying if you attach the car finance to your home loan.

Let’s do some numbers…..

30 year home loan + Car purchase:

Bundling in a car loan of $30,000 with your $500,000 home loan @ 2.7% interest can mean paying as much as $13,804 more in interest over the term of the home loan.  Of course, you can reduce the overall interest if you can make extra payments.

Car finance:

For a personal car loan of $30,000 @ 5.95% interest rate over 5 years, you will be paying approx. $4,751. in interest and you will own the car outright at the end of your loan.

Advantages of using a home loan:

  • No need for additional credit checks and you still make only one repayment each month, if applying for the loan at the same time as a refinance.
  • The home loan interest rates are typically far lower, around 2.5%, compared to those you can expect to pay on a personal car loan at 5-15%.

 

Disadvantages of using a home loan:

  • Home loans are a very long-term debt – so you would be paying interest on the car for a far longer period than you would with a car loan which will add to the overall cost of the vehicle.
  • Cars depreciate more rapidly so it makes good sense to keep interest costs to a minimum by paying the vehicle off as soon as possible.

 

Advantages of using a car loan:

  • Car loans are usually short-term, 3-5 years so even though the loan rate is higher than for your home loan, the total interest cost will be lower.
  • You could own your car outright at the end of 5 years.
  • Car loans are more flexible than they use to be – some allow extra payments and redraw may be available. You can also have a balloon which enables your repayments to be lower (although this could cost you more in interest)

 

Disadvantages of using a car loan:

  • Upfront fees and monthly loan services fees may apply
  • Car loans will have higher repayments which will have a greater effect on your borrowing capacity should you wish to apply for other loans.

 

Whichever way you choose to go – drive safe!

Article written by Peasy
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