Should I pay cash for a car?

Cash for a Car

Two of our favourite clients recently shared their story about one of their past financial ‘mistakes’.

Early in their married life – 20 odd years ago – Glenn and Toni paid cash for their first car together. Was this a good move? We explore the answer below.

Just to give you some background – Glenn and Toni were in early married life and renting. They had no investment properties, no credit card debt, no mortgage or other lines of credit. Both were working full time earning professional salaries. They received a lump sum redundancy payment (lucky them!)

They had plenty of cash available and wanted to buy their first car together. And they wanted a new car. They went to the bank.

What advice did they receive? They were advised not to incur any debt as they had managed fine without it to date!

So they took their $30,000 in cash and bought a car.

Now if Glenn and Toni had taken that $30,000 over 20 years ago and made their first property investment, would that have been a better move? Would their financial position be a little different today?

Most definitely YES!

Q. Why shouldn’t I pay cash for a car? Won’t the interest on my car loan really add up?

Many people are scared of debt. They think all debt is ‘bad’ debt. But while the value of your shiny new car decreases the moment you drive out of the showroom, property investment is a long term strategy aimed at building wealth.

The equity you build in your property over time will far outweigh the interest you have paid on your car loan. PLUS you start building a good credit history. This history is required to be approved for a home loan in the future.

Q. We can’t afford to buy where we would like to live so what’s the point?

For many people it makes more financial sense to buy an investment property before buying a home to live in. Your chosen suburb might be too expensive for you right now. However the capital gains on an investment property could help you fund another deposit for a property further down the track.

Look for affordable properties in popular rental areas. Start small and don’t overextend yourself.

Q. What if we don’t have enough for a deposit?

Glenn and Toni would have had more than enough deposit for a home loan 20 years ago AND would most likely have also been approved for a car loan! As your trusted finance specialists we can help you explore deposit options. Some lenders offer loans with only a 5% deposit.

Did you know for every $10,000 you have in cash, you can borrow approx $90,000 towards a property?

Already a home owner? With the equity you have built AND the cash you would have paid for a car, an investment property may be more possible than you think!

So why not have your car and property too?

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