The True Cost of Your Car (It Guzzles More Than Fuel!)
For many people, cars aren’t merely a mode of transport. A car can represent a space for time out, comfort and peace from our rush-around days. For other people, cars represent a symbol of status or wealth.Yet despite the benefits of driving a nice car, what is that luxury really costing us?Records from the Australian Bureau of Statistics (ABS) indicate that Australians collectively owned over 18 million vehicles at the start of 2016. Ranging from van to utes and motorbikes, Aussies certainly love our wheels! So much so, that we’re willing to fork out an annual bill of $80 billion to purchase and look after them.While driving a nice car is an undeniable joy, the real costs of a car loan might give you pause to smile…It’s not just the principal loan and interest repayments that may make you grimace. Discover how the wrong kind of car loan can hurt more than your bank account balance!Have we piqued your ‘interest’? After mortgage repayment, car loans account for one of the largest components of household debt. According to the ABS, Australians pay out $3 billion in car loans every month. And while debt certainly isn’t always a bad thing, it can be if you aren’t equipped to manage it correctly.It probably comes as no surprise to hear that a major cost of your car loan is the interest. According to the MoneySmart Cars app and Canstar, Australians have an average car loan of $18,000, with interest rates ranging between 4.69 to 15.99%.With interest, this means that an $18,000 car actually costs you between $20,800 and $26,860 by the end of your loan period.Do you really want to spend an extra 8G on that shiny piece of metal?The Solution: Save up! This way, you can make compound interest work in your favour, rather than putting money in the bank’s pocket. It doesn’t mean that you will get your new car overnight but it does mean that you’ll save yourself many thousands of dollars in the long run.Sorry to burst your borrowing bubble but…The unfortunate reality is that whatever amount you loan for your car may affect your borrowing power down the track.If you apply for a future loan (such as a mortgage or personal finance), your prospective lender will search through your credit history. Any outstanding loans will be taken into account when considering how much you may subsequently borrow.In this context, what might seem like a little car loan can actually make a big difference. For example, if you pay $600 a month over a five year car loan, that is money you can no longer pay towards a new loan. In real terms, that car loan deducts $7,200 annually or $36,000 over five years – all money that could go otherwise go towards a mortgage or investment loan.The Solution: The good news is that there are multiple solutions!Firstly, as mentioned earlier the ideal solution is to save up for your car purchase. This avoids putting any dent into your borrowing power.However, if you already have an existing car loan, you may wish to consolidate your loans. By combining your car loan, mortgage, personal loans and credit cards into one big ‘loan’ pot, your debt becomes a whole lot easier to work with! This can also decrease your overall payments and grant you the flexibility to structure your loans in better ways.This is where our Think Money property mentors can really help you! With expertise in property, finance management and investment, our mentors can show you how to make your debts work for you and not the bank. For further information, call our office or join us at our money management seminars.