Let me start where most brokers wouldn’t.
Rolling a car into your home loan is usually a bad idea. You’re taking something that will be worth very little in ten years and paying it off over thirty. The car dies long before the debt does.
I say that to clients regularly. Then a couple rang me recently and for them it was the right call. The reasons matter more than the rule, so here they are.
Their situation
Their car was on its last legs. Not a want, a need.
They’d been to the dealer and come away with finance on a $55,000 car over five years. Repayments north of a thousand a month.
They’ve also got kids in childcare, with another two to three years of it to run. Anyone who’s paid childcare knows what it does to a budget. Adding another thousand a month on top wasn’t going to work. Not comfortably.
So they rang to see what else was possible.
What we looked at
They had enough equity in the home to cover it. That’s the first thing I check, because without it there’s no conversation.
Their home loan hadn’t been reviewed in a while. Moving lenders got them a further 0.19% off the rate. Not dramatic on its own, but it sits under the whole balance, so it adds up.
They went with an electric car, which takes the fuel bill down too. Another small thing that shows up monthly.
Put it all together and the numbers surprised them. Repayments on the new, bigger loan weren’t much different to what they were already paying. Different loan, larger balance, similar monthly figure.
Now the bad bits
I don’t present the upside and go quiet on the rest.
That car will be worth next to nothing in ten years, and under this structure they’d be paying for it for another twenty after that. Stretched over thirty years, the interest on $55,000 costs a lot more than it would over five. Cheaper monthly does not mean cheaper overall. Those are two different questions and people mix them up constantly.
I said all of that before they decided anything.
Their plan, not mine
Here’s the part I liked.
When the kids come out of childcare, that money stops going out the door. Their plan is to take it and throw it at the home loan. Do that, and the car effectively gets paid off over about the same five years the dealer was offering. Just at a lower rate, and without the squeeze while childcare is still running.
That’s a real plan. It only works if they follow through, and I told them that too. But they’d worked it out before I’d finished explaining it, which tells you something about them.
Why they got three options and not one
I never give one answer.
They could have taken the dealer finance. They could have done a separate top up on the house and left the existing loan alone. Or they could refinance the lot at a lower rate, which is what they did.
My job isn’t to pick. It’s to lay out what each one costs, in dollars and in years, and let them choose with their eyes open. They’re the ones living with it.
Would it work for you?
Maybe. Maybe not.
It depends on your equity, your income, what else is going on, and whether you’ve got a genuine plan for the back end or just a vague intention.
If you’ve got a car problem and a mortgage and you’re wondering what’s possible, that’s worth a conversation. I’ll tell you straight if it’s a bad idea for you, same as I tell everyone else.
When all you do is refinancing, you get very good at it. I’ve been doing this since 2002.
The first chat is free. 15 minutes, no forms, no obligation. If you go ahead, there’s a flat fee of $440 for the work we do. We only charge it once the loan is approved. If it’s declined, there’s no fee.
The information provided on this site is on the understanding that it is for illustrative and discussion purposes only. Whilst all care and attention is taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances. Terms, conditions, fees and charges apply. Normal lending criteria apply. Rates subject to change. Approved applicants only.
Jason Nelson is a Credit Representative (400516) of Bissa Pty Ltd ACN 117 651 760 (Australian Credit Licence Number 391237).
