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Can You Finance Your Car Through Your Home Loan

Let’s not waste any time here, the answer to the question “Can you finance your car through your home loan?” is yes… of course there are a number of provisions involved which we will discuss in this article. Another very important question is “Will it be in your best interest to do so?” This one we will leave up to you to decide once you have weighed up all your options.

Will I qualify for a bigger home loan to accommodate my car finance?

Before you even investigate the option of financing your car through your home loan you need to establish if you will qualify for an increased home loan. Since the credit crunch hit the world in 2008 banks have become stricter in the granting of credit.

Not only the credit debacle but also the National Credit Act made it more difficult to obtain new credit. The most important aspect the bank will look at is to see if you can afford the increased payment on your home loan. Also, there must be enough scope in your loan to valuation ratio.

If you have enough scope available then play open cards with your bank and tell them why you want to increase your bond. Buying a car this way can also be seen as a form of debt consolidation.

Some people say you should never finance your car through your home loan?

The reason why many warn you against financing your car through your home loan is that a home loan is a long term debt while a car loan is a medium or even short term debt. Even if you buy a brand new car you should repay this debt within a maximum of five years.

If you decide to finance your car through your home loan you will find that the increase in your monthly home loan repayment will be much less than what you would pay on car finance IF you choose to repay the new home loan installment over 15 to 25 years. So what’s the problem?

Be interest rate savvy

The interest rate on your home loan will be at least 3 to 4 percent less than your car finance rate, so you can save a lot in interest. But…and it is a big but. When you choose to finance your car through your home loan you should not repay the additional amount you have borrowed over the original bond term, be it 15 or 25 years. If you do that you will end up paying much more interest at the end of the day and that’s not very clever.

How many years do you keep the same car?

The question can also be “How long does a car last?” Obviously you cannot place your car and your home in the same category. The car will be long gone and you certainly don’t want to still be paying off on a car you don’t have any more (paying on your bond) while having to buy a new car again.

What then is the secret?

What you need to do is to calculate the car repayments over a maximum period of five years (at the home loan rate) and then you pay that amount, plus your original home loan installment into your home loan monthly. When you do this you will definitely save money as you are now repaying your car at home loan rates, not car loan rates; but over the same period you would normally pay back a car loan.

You must have financial discipline

If you are a financially disciplined person there should be no reason why you should not finance your car through your home loan as you can save yourself money. As a disciplined person you will also not be tempted to buy an even more expensive car when doing it through your home loan.

If you are just looking to reduce your monthly repayments and are not concerned about what will happen in five years time…well, then you do not have financial discipline and you must rather apply for a car loan and pay the extra interest every month. At least this way you know your car will be paid off in five years time instead of twenty!

Weigh up the pros and cons

Before you make a final decision as to what method of financing you are going to choose for your new car, make some calculations yourself. Use the calculators available on the banks’ home loan sites and see what your monthly costs will be and what you can save IF you pay off the car finance in five years.

Good luck, here’s to that financial discipline!

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