New Car - Personal Loan or Use Money from Offset Account?

frostee on 27/08/2017 - 09:28
Last edited 27/08/2017 - 15:32 by 1 other user

I can't work out which option is better

Car is $25k. We easily have enough to take the cash from our offset account. Obviously this will affect the interest we are paying on our mortgage (currently 3.5%). I'm trying to work out if long term we are better off financing the car. The dealer offers 8% over 5 years or the more likely option is a personal car loan with 6.5%.

How would one go about working out which one is better? Cash makes sense to me but possibly the interest saved on the mortgage makes finance better?

Financial

Comments

JimmyF on 28/08/2017 - 16:13

How long do you want to take to pay the car back?

Taking the money from the offset account is the cheapest access money you have, BUT it depends on how long you take to pay it back.

So if you want to pay it back in 5 years, then make sure you put EXTRA repayments in to cover this amount you borrowed.

Its silly to borrow money @ 8% when you can borrow it at 3.5% from your offset account.

So whatever the repayments are for paying the dealer loan back, just pay them back into your offset account for 5 years instead, and use the money from the offset account.

This way you pay the money back and a little bit extra. :)
cooni on 28/08/2017 - 16:27

+3

It makes me sad that there is so much confusion on a bargain website.
Geoff-bargain on 28/08/2017 - 16:39

Option 1: get the bus
Option 2: go get
Option 3: offset
y on 28/08/2017 - 16:41

The offset is obviously the correct answer here

Take the money to buy the car out of your offset account and make extra repayments at the same rate as if you had taken the 8% car loan or 6.5% personal loan - You will "repay" the car much sooner and having paid less interest

It makes absolutely no sense in any circumstance to take out an extra loan at double the APR if you have the money already sitting there in an offset account that's offsetting a 3.5% loan
jungle on 28/08/2017 - 16:59

This is very simple, simple, simple and obvious choice. I also feel very sad that so many people on a bargain website are lack of very basic mathematical sense. Some people even say "Use a spreadsheet"! Come on, spreadsheet is not the tool expected to resolve such silly issues.

Just treat this as a new loan. The car is 25K, so the lender will pay 25K to the dealer and then you will have to pay interest to the lender. The loan amount is the same, so the only differences are 1)the interest rate is 3.5% or 6.5%, and 2) the personal loan doesn't have an offset account. Both are in favor of drawing money from the offset account.

If your home loan rate is 6.7% whereas the personal loan rate is 6.5%, then the calculation becomes tricky here and worth using a spreadsheet to figure out which one is better off!
[Deactivated] on 28/08/2017 - 17:06

it is no brainer to use the cash from your offset account. the car will not have any security registered on it = cheaper insurance. works well if the car is 100% for private use.

but if you use your car for work or business and claiming work related car deductions or motor vehicle expenses, best to get a new separate loan for it for ease of separation for tax purposes.
lunartemis on 28/08/2017 - 18:04

+1

Have you considered novated leasing? You will get tax free car, fuel, servicing and others you would normally pay GST.
- Snail on 29/08/2017 - 22:13
  
  FYI There are costs associated with novated leasing which offset the savings.
Amaris on 28/08/2017 - 18:20

+2

Take money from the offset. Calculate the monthly repayment if it was a personal loan for 5 years. Religiously put that amount to the offset as if you were paying the personal loan. IMO the cheapest way
megadeth on 28/08/2017 - 19:05

+2

It would be interesting to have a poll to see how many ozbargain will favour car loan. Think most of us here have basic understanding of maths and would go for the offset option and repay religiously in the same timeframe as the potential car loan
- Mike88 on 28/08/2017 - 21:50
  
  +1
  
  After reading some of the comments here I am not convinced there would be a majority with the correct answer :/
fedwood on 28/08/2017 - 19:29

+3

I had the exact same situation. We pulled 26k from offset and bought a car.

It's a no brainer.
mattie on 29/08/2017 - 07:07

Car loans have an establishment fee, could be $1000
jerjergege on 29/08/2017 - 08:07

+2

lol at all the comments.

You don't need to be a mathematician to know 3.5% IS SMALLER THAN 6.5%
ChrisBrisbane on 29/08/2017 - 08:32

My advice would be to wait a few months and see if any of the automakers come out with 0 percent finance, or 1.2 percent finance or similar. Skoda usually do it in early October or towards the end of the financial year. If you cannot wait, use your offset account. The rate is much better, it is simple maths.
CLoSeR on 29/08/2017 - 09:10

Use your offset cash, don't get a personal loan at higher interest.
godofpizza on 29/08/2017 - 09:23

not sure if people understand the concepts of home loans and offset accounts.
But taking money from you offset account is better, if your making the same repayments back into the offset account (if you were paying back the loan - for the car at the same rate as you would have the car loan). otherwise the longterm loan of 25 years @ 3.5% is going to be somewhat larger than the short term car loan @ 6.5%.
ali55 on 29/08/2017 - 09:33

Taking money from the offset is the correct answer, but why everyone saying repay back to the offset?? Where do you guys normally keep your money if you have an offset against your home loan? So, The "Pay Back" is non-sense if you put all your money in the offset anyway!
- godofpizza on 29/08/2017 - 09:56
  
  an offset is a separate account but it's connected to you home loan account. Money you put there can be used to offset you home loan balance and thus saving money on the interest that would have been applied to your loan amount.
  - ali55 on 29/08/2017 - 10:28
    
    I know the definition of Offset account mate. I just surprised why everyone saying to repay back to the offset while OP indicates that he puts all his money into the Offset anyway. So technically if OP puts all household income to the Offset account, what's the point of "Pay Back" to the Offset?
  - CLoSeR on 29/08/2017 - 10:55
    
    For some of us it's the primary transaction acct, all money starts it's journey there.
Exec-Matrix on 29/08/2017 - 14:40

As others have said, this has become ridiculous. People carrying on about minute differences. I was in a similar position not long ago. I could have bought a slightly newer car for a lower interest rate of 7.99%, however decided to get a separate car loan of 13% for a car over 6 years old. Thus, I have the EXACT car I want. The catch here is that I'm making double the weekly repayments which should see the loan paid out in 3 1/2 years or less instead of 5. Just an example but hey.
- Snail on 29/08/2017 - 22:06
  
  +1
  
  I think the point is that if you just doubled the weekly repayments without the separate car loan, then you would've actually paid off the loan faster than 3 1/2 years and saved quite a bit of money from paying less interest.
- ChickenTalon on 30/08/2017 - 10:21
  
  This comment is ridiculous. Borrowing at 13%!!!! Unless no one else will lend to you then this makes absolutely no sense. You should borrow the money for the car that you want from the best source, i.e. the cheapest. You are free to shop around for your loan anywhere.
  
  http://www.ratecity.com.au/personal-loans
  
  If you borrow 10k at 13% and pay it in 3 years (assuming monthly payments and no other fees). Your total interest payments will be $2,130.
  If you added 10k to an existing mortgage by re-financing or taking from a redraw/offset. at 4% interest you'd be paying $629 in interest.
  
  $2,130 V's $629
  
  and that doesn't include any of the establishment or monthly fees for the car loan.
  
  Madness!
  
  here is a handy tool you can use.
  https://www.moneysmart.gov.au/tools-and-resources/calculator…
justwii on 29/08/2017 - 17:22

+2

I simply can't work out how people cannot see this is just a comparison between two interest rates for the same amount of loan. There is no catch no hidden cost no nothing.

If it was asking about offset loan vs salary packaging, then it would at least be a more challenging question. And it mainly depends on how much fuel you use in a year.
UltimateAI on 29/08/2017 - 19:28

Use the offset most banks let you have multiple for free and setup auto repayments over 5 years at the same as the dealer finance.
Yttrium on 29/08/2017 - 20:23

you don't need to pay 25k for a car. A 5k car will be equivalently useful.

invest the remaining 20k in items that go up in value
[Deactivated] on 30/08/2017 - 08:57

+1

We got another loan just like our mortgage through our broker. They gave us $20K at the same rate as our home loan variable rate. much cheaper than a personal loan rate. And it sits on its own so we can see the amount owing decrease.

Speak to your mortgage broker about borrowing in the form of a home loan rate….
- mranderson978 on 30/08/2017 - 11:56
  
  This is good advice, except the OP is already 60k ahead on his mortgage. He doesn't need the extra finance.
  - [Deactivated] on 30/08/2017 - 12:09
    
    If he wanted to keep his $60k in the offset (for ease of cash access, savings goals etc) then he could just borrow the cash via the home loan number 2 method and it's really no different than taking $20k out of the offset. It will ofcourse impact further borrowing capacity (minor) but it's an alternative and leaves $60k accessible anytime.
    
    Cash is king!
    - mranderson978 on 30/08/2017 - 15:07
      
      Yep. The only disadvantage would be the account keeping fees (which can sometimes be rather high)
      
      If it was me and I had a spare 60k, I wouldn't bother with another loan. OP obviously has no problem saving.
OmniAtlas on 30/08/2017 - 09:26

How about a chattel mortgage? You'll have greater cash flow.
mranderson978 on 30/08/2017 - 11:54

Why is this so confusing for some many people? You go for the cheapest rate if you want to get the best price.

If "external finance" is less than your mortgage interest rate, then you go with that. If your mortgage rate is cheaper then you borrow from your mortgage.

New Car - Personal Loan or Use Money from Offset Account?

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