repayments etc

Timbo · 09-08-2008, 02:41 AM

Wraith, way to put a guy on the spot!

And I hate to have to give a fluffy answer but it depends... don't you love that answer? But if I may speak in generalities, there is generally two schools of thought - cashflow or financial management.

1. If you have $90k in the bank, no mortgage and nowhere to invest $90k except a bank account then yes, go for gold pay cash. If you fit in this category, you should also kick back, relax and give yourself a pat on the back. Don't know how you got there but you've done well.

2. If you have a mortgage, drawing down on this can be the most effective way to fund a car from a financial management perspective. The reason being the interest rate on a mortgage is generally lower than that on a vehicle loan. This does however requires more cashflow than a vehicle loan with a balloon

3. A vehicle loan with a balloon is the easiest way to get a car with the least amount of cashflow. But yes you do pay more interest by definition so from a financial management perspective not so great. But if you're only earning average wages, you can still end up with a pretty flash car with this method

These three scenarios are if you are buying the car privately and there is no work use of the vehicle or salary packaging involved. If there is work use or salary packaging that's a whole different kettle of fish where scenario 3 can become more attractive financially (not just for cashflow considerations) and I'm not even going to start going into that.

OK... I'm going to stop there because I've just bored myself silly. :iono:

Alpine* · 09-08-2008, 03:30 AM

Well said Timbo!

Go see a Tax/financial advisor guys and move on.... there are many options.

Wraith · 09-08-2008, 08:15 PM

Quote:

Originally Posted by Timbo

Wraith, way to put a guy on the spot!

And I hate to have to give a fluffy answer but it depends... don't you love that answer? But if I may speak in generalities, there is generally two schools of thought - cashflow or financial management.

1. If you have $90k in the bank, no mortgage and nowhere to invest $90k except a bank account then yes, go for gold pay cash. If you fit in this category, you should also kick back, relax and give yourself a pat on the back. Don't know how you got there but you've done well.

2. If you have a mortgage, drawing down on this can be the most effective way to fund a car from a financial management perspective. The reason being the interest rate on a mortgage is generally lower than that on a vehicle loan. This does however requires more cashflow than a vehicle loan with a balloon

3. A vehicle loan with a balloon is the easiest way to get a car with the least amount of cashflow. But yes you do pay more interest by definition so from a financial management perspective not so great. But if you're only earning average wages, you can still end up with a pretty flash car with this method

These three scenarios are if you are buying the car privately and there is no work use of the vehicle or salary packaging involved. If there is work use or salary packaging that's a whole different kettle of fish where scenario 3 can become more attractive financially (not just for cashflow considerations) and I'm not even going to start going into that.

OK... I'm going to stop there because I've just bored myself silly. :iono:

+ 2

Thankyou very much and sorry to put you on the spot, but very well answered - that does make sense and does echo what my accountant 'briefly' explained to me :smile:

On a side note, I don't believe it would be difficult for an average 40 something year old professional to have 90k laying around, although most would've already put that kind of cash to use in another property or whatever else, or spent it LOL :smile:

Once again, thanks heaps for the very good quick lesson :w00t:

e36chris · 10-21-2008, 08:56 PM

sorry to bring it back from the dead..

is it worth it to refinance your ballon amount, in terms of paying interest again etc.

i currently just bought a house, and i could maintain payments of the car rough 800 bucks but i would love to have 500 dollar payments plus the balloon.

is it worth it for me to do fellas? i plan on putting down 15k, but still..

not sure if owners choice is the best bet for me

MikeVictor · 10-21-2008, 09:53 PM

Quote:

Originally Posted by e36chris

sorry to bring it back from the dead..

is it worth it to refinance your ballon amount, in terms of paying interest again etc.

i currently just bought a house, and i could maintain payments of the car rough 800 bucks but i would love to have 500 dollar payments plus the balloon.

is it worth it for me to do fellas? i plan on putting down 15k, but still..

not sure if owners choice is the best bet for me

This is a tough one to answer as not enough is known about the rest of your financial situation.

It's a bit of a short answer, but I think it's going to be a matter of what you can afford is what will be the best.

Oz135i · 10-22-2008, 12:41 AM

My advice is to always keep as much free equity / borrowing capacity as possible for any future investments - so fund the car in full with debt secured against the car.

Set the term and residual to whatever works best for you cash flow wise. Again, the longer the term and the higher the residual then the lower the repayments and the greater the CF for the ownership period (until the end - at which time hopefully the car with worth approx the value of the finance payout. Keep in mind your expected km's here as its a big factor).

Currently the car finance rates (if you negotiate) are around 1% higher than a standard variable mortage rate on residential real estate. Make them a deal when you buy your car that you will take the final negotiated price on the proviso that BMW finance give you X% (trust me they are the only finance company that will run their loan at a cost neutral position for the sake of selling a car). Do not call BMW finance - the best BMW dealers will have an onsite broker that will work with your salesperson to make the deal happen. The BMW call centre cannot do this. You will get a much better rate this way.

With car finance rates at such a small premium to the current standard variable home rate the saving on using your home loan / equity is minimal.

Refinancing a car to draw back equity from it once it is owned is a lot more difficult (in some cases impossible) than doing such with real estate. So if an investment opportunity or other CF requirement comes along and your home loan is maxed out but the car is fully owned, you are probably going to struggle to get funds.

MikeVictor · 10-22-2008, 04:31 AM

Quote:

Originally Posted by Oz135i

Currently the car finance rates (if you negotiate) are around 1% higher than a standard variable mortage rate on residential real estate.

You need to negotiate better if you're getting rates 1% above the std variable rate.

I'm not trying to smack you down, Oz, I can see it's your first post and your reply was good, but you can pick up rates of 8-8.5% at the moment on car finance.

I picked the CBA as a comparo and their basic no-frills home loan, the Economiser, has a comp. rate of 8.15%

This makes the arguement for using the car as security instead of a residential property even more compelling as you advised.

09-08-2008, 02:41 AM	#45
Timbo First Lieutenant 4 Rep 302 Posts Drives: BMW 135 Join Date: May 2008 Location: Australia iTrader: (0)	Wraith, way to put a guy on the spot! And I hate to have to give a fluffy answer but it depends... don't you love that answer? But if I may speak in generalities, there is generally two schools of thought - cashflow or financial management. 1. If you have $90k in the bank, no mortgage and nowhere to invest $90k except a bank account then yes, go for gold pay cash. If you fit in this category, you should also kick back, relax and give yourself a pat on the back. Don't know how you got there but you've done well. 2. If you have a mortgage, drawing down on this can be the most effective way to fund a car from a financial management perspective. The reason being the interest rate on a mortgage is generally lower than that on a vehicle loan. This does however requires more cashflow than a vehicle loan with a balloon 3. A vehicle loan with a balloon is the easiest way to get a car with the least amount of cashflow. But yes you do pay more interest by definition so from a financial management perspective not so great. But if you're only earning average wages, you can still end up with a pretty flash car with this method These three scenarios are if you are buying the car privately and there is no work use of the vehicle or salary packaging involved. If there is work use or salary packaging that's a whole different kettle of fish where scenario 3 can become more attractive financially (not just for cashflow considerations) and I'm not even going to start going into that. OK... I'm going to stop there because I've just bored myself silly. :iono:
	Appreciate 0 Quote

09-08-2008, 03:30 AM	#46
Alpine* Brigadier General 1282 Rep 4,093 Posts Drives: M2 G87 Join Date: May 2008 Location: Australia iTrader: (0)	Well said Timbo! Go see a Tax/financial advisor guys and move on.... there are many options.
	Appreciate 0 Quote

10-21-2008, 08:56 PM	#48
e36chris Second Lieutenant 3 Rep 216 Posts Drives: Join Date: Feb 2008 iTrader: (0)	sorry to bring it back from the dead.. is it worth it to refinance your ballon amount, in terms of paying interest again etc. i currently just bought a house, and i could maintain payments of the car rough 800 bucks but i would love to have 500 dollar payments plus the balloon. is it worth it for me to do fellas? i plan on putting down 15k, but still.. not sure if owners choice is the best bet for me
	Appreciate 0 Quote

10-22-2008, 12:41 AM	#50
Oz135i New Member 2 Rep 18 Posts Drives: Join Date: Sep 2008 iTrader: (0)	My advice is to always keep as much free equity / borrowing capacity as possible for any future investments - so fund the car in full with debt secured against the car. Set the term and residual to whatever works best for you cash flow wise. Again, the longer the term and the higher the residual then the lower the repayments and the greater the CF for the ownership period (until the end - at which time hopefully the car with worth approx the value of the finance payout. Keep in mind your expected km's here as its a big factor). Currently the car finance rates (if you negotiate) are around 1% higher than a standard variable mortage rate on residential real estate. Make them a deal when you buy your car that you will take the final negotiated price on the proviso that BMW finance give you X% (trust me they are the only finance company that will run their loan at a cost neutral position for the sake of selling a car). Do not call BMW finance - the best BMW dealers will have an onsite broker that will work with your salesperson to make the deal happen. The BMW call centre cannot do this. You will get a much better rate this way. With car finance rates at such a small premium to the current standard variable home rate the saving on using your home loan / equity is minimal. Refinancing a car to draw back equity from it once it is owned is a lot more difficult (in some cases impossible) than doing such with real estate. So if an investment opportunity or other CF requirement comes along and your home loan is maxed out but the car is fully owned, you are probably going to struggle to get funds.
	Appreciate 0 Quote