Using your home loan to buy a new car

When buying a new car, using your home equity rather than taking out a car loan can be a simple way to save money. By financing a vehicle purchase through a home loan, buyers can take advantage of lower interest rates so that a smaller chunk of household income is going towards car repayments.

Interest rates for secured car loans are circa 6.75% for a new car and 7.29% for a used car. These secured car loan interest rates are more than double the average home loan interest rate paid by owner-occupier borrowers.

It's worth considering your home loan to fund a new car purchase – weighing up potential savings and the convenience of rolling a car and home into the one repayment each month.

Car loan repayment strategy

If you use your home loan to fund the purchase of a new car to save money, it's best to make additional repayments to ensure you are paying off the loan in the same time period as you would have paid off a car loan.

By doing this, you can pay off the funds used to purchase the vehicle in 5 years, not 30 years. Whilst you may be paying a lower interest rate, if you spread out the repayments over the years remaining on your home loan, you end up paying more interest in total.

Create a set term to repay the car loan by, ensuring you are able to make extra home loan repayments without penalty. Some lenders, will allow you to divide your home loan into separate accounts. Consider putting the car loan amount into one account so you can track progress, set yourself a goal to pay it off in a set time period.

Other ways to save money

Dealer demonstrator cars are a simple way to save thousands of dollars on the price of a new car. They're generally very well maintained, dealer-serviced and have only been driven a few thousand kilometres, and many have a range of extras already included.

When you're negotiating, push for any extra warranties and servicing you can – the right timing could mean you find the new car you were hoping for at a better price than you expected.

If you’re considering releasing equity in your home loan to finance a new car purchase, speak with your friendly and trusted Mortgage Broker today.

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