Cash or Finance for car?

HI guys,

I’d be interested to hear how you guys went about buying your car? Do you pay cash or take out a loan?

I’m due for a car in the next 6 months and want to know the best way to go about it without it massively impacting my serviceability. The trade in on my current car will be minimal and I have around $25,000 in an offset account so not sure whether to pay cash or not.

Thanks in advance

 

I paid cash for mine - if servicing is an issue, chat to you broker and they'll see how much it would impact things for you.

 

Definitely cash.

I paid out a novated lease last year so I could improve my serviceability.

Some cars depreciate less than others. Consider that when buying.

 

Why due?

 

Thanks for the replies. I'm due because I have begun to have car troubles with my current one and my mechanic thinks there will be more to come.

So cash even though it would mean less in the offset and more interest?

 

Vehicle loans have large impact on serviceabilty, due to combination of higher rate and loan term.

Not sure what your equity position is like - could take out equity loan and purchase vehicle on long loan term (could always pay it back like a 2-5 year loan term, but as it would be based on 25-30 years the minimum repayments are very low, which would result in minimum impact on serviceabilty).

Otherwise could payoff PPOR debt (if you have any) and redraw the funds back out, split and have seperate loan (not sure if your personal details if loan would be deductable) - but again would have minimum impact on servicing and gets you a seperate loan thats not mixed.

 

I always pay cash for motor vehicles for two reasons. First they depreciate in value and the second and most important reason is that the loan would affect serviceability too much.

 

Cash. Unless you need a credit rating. Why pay 35k (including interest) for a 25k car that's only going to be worth 15k at best at the end of the loan. Just buy a 10k Toyota Corolla with cash and be done with it. Ego cars can come later when you have the $$$ to back it up from better invested funds now.

 

Easy. Keep the existing car, pay out any debt.
Due or Want. That's what you need to differentiate.

If you have to ask how you can do it without impacting your serviceability, then its not the right time to be buying a new car.

 

Is serviceability hit if the new ute is thru the business?

 

If looking to borrow from banks - pay cash or do what @Brady suggests and potentially use home equity (split out).

If financed via personal loan/leases, banks will insert your repayment amount into servicing calculator. Due to the shorter loan terms and higher interest rates (usually), the monthly repayment amount on cars are relatively high compared to their actual value.

As a general rule of thumb, if you have a $1000 p/m repayment, it will reduce your borrowing power on your next loan by $140-150k. This will compound further if you extrapolate its impacts on your ability to build a property portfolio.

For many, the car repayment is the difference between a yes and no for property investing financing.

 

Cash.

 

Have your cake and eat it too.
Get loan approval. Pay cash for the car and then recieve the cash direct from the lender. Buy shares.

You get a car. Lose the cash, get shares - and have a tax deductible loan.

Blacky

 

Thanks for the replies guys. I still want to add some properties to my portfolio so I'll use my cash instead

 

Agree with the general sentiment above - cash for cars.

Cheers

Jamie

 

Any business use?

 

Unfortunately no business use

 

Depends really on the type of deal thats out there, Car loans can be had from 3.99% fixed at the moment.

End of the day your $30k cash is worth half in 5 years time.

 

Pay cash where possible and use equity over a 30 year period if no cash available. I have heard people (brokers included) say you shouldn't do that because you will pay bookoo interest blah blah! What they are failing to realise that its flexibility that is important and you can pay that loan out in 2 years or 30 depending on your individual circumstances.

These things are evil. Refinanced plenty as they can crush your serviceability.

Is it in your personal name or business name?

 

[QUOTE=Is it in your personal name or business name?
Business mate