There are several benefits and disadvantages to using your home loan as finance for a new vehicle, but it comes down to what works best for you and your finances. It is important to consider the pros and cons carefully, weigh up what effect your decision would have and, of course, consult a financial expert to help you make the best possible decision.
A car is an expensive investment and you should make sure you make the right decision with the way you choose to finance it, because either way, you will be paying if for years to come.
How do you use a home loan to finance your new vehicle?
You can often use your home loan in order to finance your vehicle. Usually, a home loan can be paid over a longer period than a vehicle loan and will have a lower interest rate. You can take out a home loan with anyone of the reputable financial service providers in the country provided that you have proof of a steady, reliable income that will cover your living costs as well as the loan repayments and interest, and a good credit record.
Some of the financial service providers that offer home loans include Standard Bank, ABSA, First National Bank, Wesbank, Nedbank and many more. Always go with a reputable financial service provider with a good track record and a base of happy and satisfied customers.
What are the benefits?
The benefits of using a house bond to finance your vehicle include the following:
- A home loan usually has a much lower interest rate than a loan to finance a vehicle meaning that you will save money by taking out a home loan rather than a specific vehicle finance.
- A home loan can be paid off over a much longer period than a car loan (usually twenty years as opposed to five) meaning that your monthly payments will be smaller.
It is a good idea as the rate is lower but the key is to still pay off the loan within five years so you do not extend the payments in line with your home loan. Although you do have a longer period to pay the money off, try to pay a higher amount than the minimum per month so you pay it off quicker. If the car is paid off sooner, you can trade it in while it is still relatively new without much mileage on the clock. You still do not have to pay as much per month as you would on car finance.
Another benefit is if you have an unexpected expense come up you could revert to paying the minimum monthly payment and use the extra money to cover your other expenses.
What are the disadvantages?
You will first need to find out if you extract money from your existing home loan. If the total amount of your new loan is more than the total amount of your existing loan, you will incur a lot of extra fees and costs through legal and registration costs. You should also not be fooled by paying a low amount over a longer period. The total cost of the vehicle can rise very high if you take too long to pay it off, defeating the purpose of trying to save money.
What are the other ways to finance your car?
Many car manufacturers and dealers offer good deals with low interest rates on certain cars or from time to time. It is a good idea to check with the dealer first to get a quote from them to compare to your home loan quote. It is also a good idea to check with your bank what finance loan they are willing to offer you as you might be surprised by a very good deal.
It would probably be worthwhile to look at other options for financing a vehicle like taking out a personal loan for the purpose of comparison. Do not limit yourself to just one option when it comes to making a very big and important purchase like buying a vehicle. When comparing quotes always look at the length of the loan and the interest rate as well as the total amount payable over the loan period.