Don’t pay cash – use finance
Many times I have heard clients wanting to pay “Cash” for a large purchase like a motor vehicle. Often they have saved very hard and for a long period of time. On face value this sounds like a good idea and in some cases it may be the best option. However, for many people it isn’t the best option. Let me show you why using finance is a good option – In 2012 a client of ours, we will call her Maria, decided to purchase a new car for $26,240. She had saved hard for three years and put away $350 per fortnight.
If she pay’s “Cash” – As Maria had planned she buys her new car and fully pays for the car with cash. She uses no finance at all. Now Maria owns a car that we all know is a depreciating asset. On average a new car will depreciate to at least 50% of its value within 3 years. The current Red Book Trade value for her car is now $12,000. So, Maria used all her savings of $26,240 to buy the car that today is only worth $12,000.
If she uses “Finance” – Instead of using all her cash savings, she now uses some of her savings as a deposit and finances the balance. Maria uses $6,240 as a cash deposit and finances the balance. The remainder of her savings she puts in a Bank Term Deposit and earns 3% interest – yes this is still possible. With the help of All Nation Finance Maria qualified for a new car loan at only 6.99% over 3 years. Her instalments were $300 per fortnight. At the end of 3 years Maria had repaid the bank $23,400 in loan repayments, but Maria’s financial situation is much better than the earlier option.
At the end of three years Maria still owns a car with a Red Book value of $12,000, but now Maria also has her Bank Term Deposit that with compound interest at 3% per annum is worth $21,845. Her total combined assets are worth $33,845. Plus if Maria decides to update her car she can use the car as a trade-in and still keep all of her savings!
Another benefit is that her savings are still available as a fall back if any big issues arise or she may decide to use the money to buy an investment.
Please call us any time for advice and discussion – we are here to help you!
Contact: Alan 0424 185 442 or Gayle 0411 494 800