Financing Vs Purchasing

[gilto]

Hi all,

When it comes to financing vehicles I am fairly new.

I would like to know the different options for purchasing a vehicle second hand. Let's make VEHICLE X worth $85,000 second hand, either from a private seller or through a dealer.

I could:

a) Purchase outright with cash

b) Re-finance my mortgage and buy the car outright against my house paying 5.5% interest (approx)

c) Get a personal loan (I know this is a bad option)

d) Lease through my business (although I already have 1 vehicle leased so maybe not possible?)

e) ???

f) ???

What are the pluses and minuses of all the above??

I have heard the saying "I own my car outright" and I have also heard the saying "Why would you ever want to own your car outright?"

Help in this finance area from people in the know would be greatly appreciated......just want to know all the options, pluses and minuses and obviously people's recommendations.....

Thanks!

Edited 24/04/09 08:45 AM by gilto

[ZAP]

Unless you can write the car off as a legitimate business expense, then it would be pointless financing it, if you can pay cash for it.

Not only are you paying the 5.5%+ interest, you are also coping the depreciation on it. Also with business cars, you can only depreciate up to the LCT threashold of $57,600, soa nything over that amount cannot be claimed.

You will need to be more specific as to the nature of the vehicle use.

Also most finance companies will not look at a 2nd hand car for finance if it is over 4 years old. They are also less likely to approve finance at the moment.

For a 2nd hand car you have Corporate Hire Purchase (CHP) as the most popular way to buy a car for business. There are also leases, but they are generally on a new car.

[gilto]

Thanks Zap,

Ok so forgetting the business lease.....and taking into account I don't have the money to buy outright.....asides from obviously not buying a car.....purchasing it with finance from my house is really the only way to go.....

I know I will cop depreciation....the low interest rates are good though right??

[PHANTMXR6]

Low interest rates on home loans are good for cars if the loan term is short.

I haven't done the maths but an (example) $50k car paid off in five years at an average finance rate of (again, example) 8.5% will probably work out cheaper than if you were to lob the $50k onto your mortgage that may still have 10-20 years left to run on it.

Interest rates of 5.5% won't stay forever so long term you may be better off talking to a finance broker.

[ronburgundy]

Pretty much agreed with Zap.

And yes once you add it to the mortgage you're basically paying the car off for as long as you have a mortgage - so even if you get rid of it technically you're still paying it off.

If cash flow is the issue though then yes paying it off technically over 30 years, at a low rate, is not a bad outcome.

Depending on the size of your mortgage you'll barely notice the difference I suggest.

Of course, as I tell all my clients when they ask me about the most tax efficient way to buy a car, an $85k car is not a business expense, it's a lifestyle choice

[gilto]

Thanks so much guys for the help...

really appreciated!!