Why get car finance instead of a top-up on your home loan?

While most people think it’s easy to pay for a new car with a mortgage-top up, there are situations in which car finance may work as a better option in the long run.

When is getting a car loan a good idea?

Even though home loan interest rates are low at the moment, the repayments you make on your mortgage top-up may add up to a higher cost in the long run, and you may even find yourself paying for your car long after you’ve bought, used and sold it.

What is a good credit score for a car loan?

It can be difficult to pinpoint a ‘good credit score’ because there are many factors that go into consideration and not all lenders disclose this information. Generally, while the higher the credit score the better, a score of 500-700 may classify as a good score for one lender but can mean something else to another lender.

Car Loans vs. home loans. What’s the difference?

A car loan is a loan secured against the vehicle you intend on buying. Your car acts as the collateral for the loan, which means if you default on your repayments, the lender may seize your vehicle. You pay off your loan in fixed instalments throughout the life of your loan. The lender retains ownership of the car until you make the final payment.

While home loans typically have a lower interest rate than car loans, typically the amount you borrow for a house is far more than the amount borrowed to buy a car. When you take the term of a home loan and look at the compound interest you’re paying over the term of your loan, it is possible to end up paying a higher amount of interest over time even though the interest rate may be lower.

The downsides to home loan top-ups

  • Total interest paid could be higher than what you pay for car finance.
  • Top-ups aren’t available on fixed-rate home loans as it involves breaking your fixed loan contract.
  • Additional fees: A top-up is still considered to be a loan, there may be application fees involved. And if your lender requires an up-to-date valuation of your home, you will need to consider that bill too.

Car Loans vs. Home Loans: Interest Rates

Home loan interest rates tend to be fixed or floating for a certain term before they revert to a variable rate. Budgeting for your new car can become easier when you’ve got a fixed interest rate payment.

Car Finance vs. using your savings

Saving for a new car sounds sensible in theory, but we all know that this is easier said than done- especially when unexpected expenses hit us. It all depends on your circumstances. People who can afford to wait might find that using their savings works for them, whereas others might find it better to take a car loan instead of using up cash savings.

The downsides buying a car with cash

  • You’re paying for a depreciating item.
  • No ‘rainy day’ savings for emergencies.
  • Still need to consider additional costs like maintenance, car insurance etc.
  • Limited cars you can choose depending on how much you have saved.

Consider a complete car ownership package

When you apply for a car loan with us, you can be certain that we’re sorting out all your additional car expenses so you can focus on what matters- getting the car you want.

Along with car finance, our packages offer:

  • GPS Security
  • Car Insurance
  • WOF & Rego
  • Mechanical Breakdown Insurance
  • Servicing
  • Roadside Assistance
  • And more.

Browse all our packages to find out more.

Whether you’re purchasing a new car with cash, topping up your home loan or getting car finance- it’s important to consider all your options with the realities they bring. The final choice comes down to what is the best option for you, your personal circumstances, and whether you find an option that meets your needs comfortably.