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Does it make sense to use the equity in your property to purchase a private vehicle versus a lease or personal loan with regards to the interest rate?
Responses
Hi Nicholas. There are a few things you would need to consider on this one such as the overall cost and flexibility of borrowing versus leasing.
The interest rate differential (relative cost of borrowing) would usually favour using home equity (assuming you have enough to cover the purchase) as you are using your home as the underlying security as opposed to a secured or unsecured personal loan which typically come at higher interest rates and shorter loan terms.
A lease may give you more flexibility to replace the vehicle but may come at a higher cost in the long term when you factor in all of the leasing costs involved and you would generally not have full ownership over the vehicle.
Overall you should run the numbers on each option and consider how often you want to replace the vehicle and other factors like depreciation etc. Finally if by some chance the vehicle needs to be used for business or work purposes I would consider the tax implications of each option and seek tax advice from a qualified accountant.
Please note this is general advice only and doesn't take in to account your personal circumstance. I am happy to have a chat to you in person if you need further assistance.
Hi Nicholas, if your equity position can substantiate it consider adding a split on a 5yr term to your mortgage portfolio. Then you have a mortgage rate for your personal vehicle :) happy to help with structure if you have questions! Peita
Hi Nicholas,
From a pure rate perspective you will generally find that your home loan rate will be better than car loan rates. That being said, car finance has become much more competitive over the years and in some instances you may find the difference marginal if purchasing a new or near new vehicle.
The below is a really high level list of pros and cons:
Car loan pros - fixed rate, fixed payment, set and forget monthly repayments
Car loan cons - inflexible, no additional payments allowed, maximum term of 7 years
Home loan pros - improved rate, flexible, extended payment terms
Home Loan cons - self managed, requires discipline, potential to cost you more in the long run
Have a great day!
Hi Nicholas B, generally speaking the interest rate on your Home Loan will be cheaper than a Lease/Personal Loan/Car Loan but sadly the answer is not as simple as that because we would also need to take into consideration how much you need to borrow, whether you have enough Equity and also what will the overall Loan to Value ratio end up being because if your overall lending is above 80% then we need to also take into consideration the cost of Lenders Mortgage Insurance. So whilst the Interest Rate may be cheaper, with added cost it may well work out more expensive. Cheers, Rob
Are you eligible to claim this vehicle as a deductible on your tax
will you be disciplined enough to clear the debt of the car within the 3 to 5 year period
Often what appears to be a sound option becomes a nightmare
I say in most notes to these questions. ..source a professional broker who will compile a fact finder and provide you the financial outcomes or all options .
it would depend on how you are employed and also your income.
it would depend on how you are employed and also your income.
As the rate can usually be lower, it's not a bad idea, but work out, at the home loan rate, how much you need to repay monthly, if you were to pay the car loan off over, say, 4 or 5 years. Then make your current repayments PLUS the new car amount.
If you simply finance the car in your loan, & pay your normal home loan repayments, you'll end up paying it off over up to 30 years, costing you more than had you financed it separately.
In addition to the previous Answers ...consider if you are tight on cashflow or not ? What is your main priority ? Cheapest commitment at the present moment or cheapest cost overall .