repayments etc

[Alpine*]

Originally Posted by cereal

Talk about it with your financial adviser.

I will admit that I am given a better deal because of my current circumstances, but I imagine that anyone who can afford to spend $80k on a car would have access to these same facilities.

I'm a Chateller (is that a word?) and rely on depreciation of the asset PLUS interest paid, which, for the first 2 years or so is great. Then you must sell, else not cover costs (monthly Chatell payments).

This is real Accountant stuff and, as I ALWAYS tell people talk to someone in the industry (not me, I'm in IT but have been doing this type of thing for 18 years though).

By the way, if you can get on the BM corporate Programme you will get a lower interest rate plus reduced Dealer Delivery charges.

Good luck.

[SimonB]

Originally Posted by AlpineM3E92

By the way, if you can get on the BM corporate Programme you will get a lower interest rate plus reduced Dealer Delivery charges.

I am on the Corporate program. I will ask the question on Monday.

Thanks,

Simon....

[harpoon]

Cereal, half the Japanese population seems to subscribe to your view point. They all buy AUDJPY and watch the interest roll in. Until AUDJPY falls 10% in a month and you lose all your carry on currency reval!

Think there must be some disappointed house wife currency traders in Japan at the moment.

[MikeVictor]

Originally Posted by harpoon

Cereal, half the Japanese population seems to subscribe to your view point. They all buy AUDJPY and watch the interest roll in. Until AUDJPY falls 10% in a month and you lose all your carry on currency reval!

Think there must be some disappointed house wife currency traders in Japan at the moment.

This happened in the recent past with JPY buying NZD in massive amounts (by comparison)

[Alext]

Dont see much sense in a balloon payment (other than improving your cashflow marginally)...at the end of the day you pay significantly more interest, especially over 5 year terms.

Eg: An $80,000 loan @9.5% say, with a 25% balloon of $20k results in a $1407 monthly payment over 5 years. And a total of $24.4k interest.

An $80,000 loan @ 9.5% with no balloon results in a $1666 monthly payment over 5 years. And a total of $20k interest.

That is a saving of $4400 over 5 years in your pocket. Or around $880/year. Not bad. In return for $250 odd per month cashflow....approx $3k/yr...which would have to return over 30% to better the cash saving.

Correct me if I am wrong as I ain't an accountant

[cereal]

Originally Posted by harpoon

Cereal, half the Japanese population seems to subscribe to your view point. They all buy AUDJPY and watch the interest roll in. Until AUDJPY falls 10% in a month and you lose all your carry on currency reval!

Think there must be some disappointed house wife currency traders in Japan at the moment.

I wouldn't go so far to say that it's half the Japanese population. Less than 1%. But yes, many Japanese housewives have lost their family's money by investing in the AUD and NZD.

My situation is unrelated however because I'm Australian and am living here for a finite amount of time. It's in my interest to be sending money back to Australia because that's where I am planning on spending the majority of my life... The fact that the AUD is tanking right now just makes it better for me!

[shauno]

"The fact that the AUD is tanking right now just makes it better for me!"

Same here. I get paid in US dollars and have been waiting for it to drop for ages. Down in the low 80's now which is good mind you not as good as 2001 when it was in the 50's lol.

[Alext]

Anyone got any thoughts on British sterling vs AUD in the coming months?

[MikeVictor]

Originally Posted by Alext

Anyone got any thoughts on British sterling vs AUD in the coming months?

One will be useful to buy things in the UK, the other will be useful buying things Down Under?

[Alext]

Originally Posted by mattyv

One will be useful to buy things in the UK, the other will be useful buying things Down Under?

That's the trouble, im not planning on buying things in the UK anytime soon (unless I can find a McLaren F1 on the cheap haha!) and want to buy things in Australia! :drinking:

[SimonB]

Originally Posted by Alext

That is a saving of $4400 over 5 years in your pocket. Or around $880/year. Not bad. In return for $250 odd per month cashflow....approx $3k/yr...which would have to return over 30% to better the cash saving.

Correct me if I am wrong as I ain't an accountant

Looks okay to me, but you're assuming the $200+ a month is okay :smile:. Now, I'm not saying it's not, but it's more comfortable. It hadn't occurred to me, though, that I am paying more interest with a balloon. But, you're logically correct. Hmmmm... Thanks for your input.

[sevo]

Originally Posted by Alext

Dont see much sense in a balloon payment (other than improving your cashflow marginally)...at the end of the day you pay significantly more interest, especially over 5 year terms.

Eg: An $80,000 loan @9.5% say, with a 25% balloon of $20k results in a $1407 monthly payment over 5 years. And a total of $24.4k interest.

An $80,000 loan @ 9.5% with no balloon results in a $1666 monthly payment over 5 years. And a total of $20k interest.

That is a saving of $4400 over 5 years in your pocket. Or around $880/year. Not bad. In return for $250 odd per month cashflow....approx $3k/yr...which would have to return over 30% to better the cash saving.

Correct me if I am wrong as I ain't an accountant

Sorry - I love controversial statements.

From your example, the total pay extra for balloon is $4400.

Assuming that you have a home loan and if you're smart, you have an offset current account. That is every cent that sits in your current account saves you interest on your home loan.

Now, from an online COMPOUND interest calculator, that extra $259 goes into counting against your home loan. At a conservative interest expectation of say 8.5% (the rate of your home loan) over the next 5 years, topping up every month by $259 that's an additional $3108 per year into your home loan. At the end of 5 years (with compounded interest calculated monthly), that's a total of $19,417 (!!) into your home loan (the magic of compound interest). Now, taking away the extra $4400 it would cost you to go via this method, it would seem that you're still about $15,000 ahead? (this is a net saving over interest payments you WOULD have incurred not really cash back - but it IS NOT TAXED!!!)

CASHFLOW IS KING!!

This could apply even if you have paid off your mortgage - it could apply to an investment property portfolio - but I assume benefits would be less because you would lose some tax benefits from your investments.

As a wise person said earlier this post, it's all about committing your funds to investment or APPRECIATING assets first as opposed to a depreciating asset such as our cars (although you gotta live!)

Would welcome all input as I'm looking at this very scenario to be completed in the next few weeks!!

[MikeVictor]

Originally Posted by sevo

Sorry - I love controversial statements.

From your example, the total pay extra for balloon is $4400.

Assuming that you have a home loan and if you're smart, you have an offset current account. That is every cent that sits in your current account saves you interest on your home loan.

Now, from an online COMPOUND interest calculator, that extra $259 goes into counting against your home loan. At a conservative interest expectation of say 8.5% (the rate of your home loan) over the next 5 years, topping up every month by $259 that's an additional $3108 per year into your home loan. At the end of 5 years (with compounded interest calculated monthly), that's a total of $19,417 (!!) into your home loan (the magic of compound interest). Now, taking away the extra $4400 it would cost you to go via this method, it would seem that you're still about $15,000 ahead? (this is a net saving over interest payments you WOULD have incurred not really cash back - but it IS NOT TAXED!!!)

CASHFLOW IS KING!!

This could apply even if you have paid off your mortgage - it could apply to an investment property portfolio - but I assume benefits would be less because you would lose some tax benefits from your investments.

As a wise person said earlier this post, it's all about committing your funds to investment or APPRECIATING assets first as opposed to a depreciating asset such as our cars (although you gotta live!)

Would welcome all input as I'm looking at this very scenario to be completed in the next few weeks!!

Well said, Sevo. Depending on where your investments are held if you have no bad (private) debt you can use this strategy when purchasing investments.

[Alext]

Yes this is good advice (if you have a mortgage+offset account).

Total deposits into your home loan (offset account) over 5yrs = $15,500. This translates into:

Total compound interest saved on loan at 8.5% = $3877
Total potential money saved post tax on loan at say approx. 12.5% (as tax free) = $6100

So bottom line: Net Saving = $6100 -$4400 = $1700 over 5 years.

Am I correct in this estimation...I was never good with numbers?

In terms of an IP, then depending on your tax bracket, it might not be so much of a saving (if at all).

But yes, if you do not have a mortgage, have ample cashflow and really wanted to minimise interest paid then going with no balloon should be a consideration I believe.

Please dont hesitate to correct me if I am wrong over my calculations guys...I actually find this stuff useful and very interesting!

[SimonB]

Okay, I don't have a mortgage, so I should 'push' myself a little more and lower the balloon. Okay, thanks guys. Oh, as per another thread, while we're at it, what's the opinion of a novated lease via your employer? My km's would be 15-20K per annum though.

[AussieRacer]

For my 2 cents, an important point is also the length of "ownership" you are after. IMO for anything more than 5 years, you are best of paying outright, via existing loan or via hire purchase. Otherwise you keep paying a premium and never will own anything.

For me, I'm intending on keeping the car a minimum of 5 years. So I'm paying out of an offset loan account for an investment property. And before anyone jumps in and says that's crazy with the compound interest. The offset balance currently equals the loan amount, so I'm pulling out the car's value only. Plus as it is an investment loan, the interest is tax deductible. :wink:

[MikeVictor]

For what it's worth, you guys really need to get yourselves a financial adviser.

While there's some good information here nothing will beat someone you can talk to about what YOU want and get advice on YOUR personal circumstances.

A little bit of knowledge can be a dangerous thing sometimes.

[SimonB]

Mattyv, yup, agreed and agreed. I'm at the age that I know I don't know it all, a few years after the age that I thought I knew it all

[Timbo]

Wow... I am an accountant and I'm so bored by this thread!
:smile:

[bluRider]

Originally Posted by mattyv

I'd question using cash, Kris, depending on your situation.

Reason is given a choice to invest the cash to buy assets and use cashflow to finance, or use cash to buy a depreciating asset I'd always choose the former over the latter.

This becomes even more compelling if you can claim deductions for expenses to earn income, reducing the cost of finance by a decent amount.

It'll be different for everyone, but if you can afford to part with $80,000 in cold hard cash you should have a revenue stream decent enough to cover finance costs!

Talk to your financial adviser, who if they know their stuff, should be able to explain this in detail.

edit- heh, I see I came 2nd to the above post with the same idea

Just my 2c, but it I would have thought it'll be better to finance ur investment and pay cash for a depreciating asset as the interest costs for an investment can be claimed as a tax deduction, while interest on a car is not tax deductible (unless u can say u use it as part of ur business, etc...)

[MikeVictor]

Originally Posted by bluRider

Just my 2c, but it I would have thought it'll be better to finance ur investment and pay cash for a depreciating asset as the interest costs for an investment can be claimed as a tax deduction, while interest on a car is not tax deductible (unless u can say u use it as part of ur business, etc...)

This is the problem when you start talking about specifics, because everyone's financial position, situation is different.

There's a couple of "rules of thumb" but you have to be careful even when talking about claiming deductions for expenses on investments as it depends on the investment characteristics and what your intentions are for said investment.

[Wraith]

Originally Posted by Timbo

Wow... I am an accountant and I'm so bored by this thread!
:smile:

Timbo, seeing your an accountant, I for one would very much like to hear anything you have to say on this topic, even in general rather than specific terms if you have to :smile:

My accountant has advised me, that when it comes to car purchases, 'outright' is ALWAYS best :iono:

He has advised that leasing, small deposits then repayments, repayments with agreed 'buy back' or balloons are all well and good too, but should 'only' be studied then appropriately chosen/considered if you are unable to purchase the vehicle outright...

He also did advise me one time as one of the best methods is to use the equity in a property investment loan (if you have one) as one of the best funding solutions for a vehicle purchase - as someones already mentioned above...

I think I will eventually go talk thoroughly to a professional on the matter, as I want to purchase my next vehicle in the smartest way possible for me to do so - I'm ready to do it outright, but if there's a better more cost effective manner, I'm all for it :smile: