Car loan first or home loan first ? It depends on how much will be the car loan and when is the house purchase going to be.

It is recommended to seek advice from a finance broker before going ahead to buy a car first before a house. The main reason is the effect on borrowing capacity for a home loan application if car loan is done first. Unless level of debt is minimal and the income adequate enough to service both loans. Contact us at efinance brokers to discuss your borrowing options, get guidance and advice before buying a car or a house.

The car can become a hinderance to buying a house as the car loan being done first will most likely reduce the borrowing capacity for further borrowing. The loan structure as well can be help, hence why best to speak to us first discussing future borrowing needs to facture in current borrowing. For prospective homebuyers, more especially first home buyers, it may be best to consider buying a used car instead of a new car. A reliable used car will still do the job for the next few years. Then the car loan for a used car, will also be much lower than that of a new car. Hence the borrowing capacity can be maintained for house purchase after getting a car loan. Also, a smaller car loan amount allows prospective homebuyer to continue saving for a home loan deposit for the house purchase sooner than later.

A car is a depreciating asset, and its value starts to reduce after purchase. While a house is an appreciating asset, equity will be accumulated as the value goes up in the long term – the mortgage also reduces in the long term. Hence, it is a much better option to buy a house first and start building equity than buying a new car first. The equity accumulated in the property can in few years help to buy a new car. Then instead of having a car loan there is an option of having the loan against an appreciating asset instead of the car. Also, car loans can be expensive as terms are shorter, interest rate higher, and thus repayments as high as home loans.

For homeowners, if property equity is used to buy a new car or to consolidate car/personal loan. A good strategy is to keep paying the car loan amount equivalent into the refinanced home loan as extra repayments. This will surely make a dent on that home loan and car will be paid within the loan term of a personal loan or car loan. The biggest benefit will be to the home loan with massive interest rate cost savings. As the principle reduces quicker with the extra repayments, the interest paid is significantly reduced. Better than having to pay high interest on a car/personal loan while still paying the mortgage.

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