Any Clever Ideas to Consolidate Loans and Balloon Repayments

patinadiary on 09/02/2015 - 15:20

Hi there,

I'm keen to consolidate our loans so that its easier to save money and know what our monthly outgoings are.

I have the following loans now…

  1. GE - Go card loan for $2,500, paying $300/pm, will finish in September-15
  2. Old Car loan for for $11,000 due to complete in May. Paying $700/m and balloon of $9000 is due in May-15.
  3. Taking on a new loan for a car beginning March-15 for about $700/m for 3 years.

My question to you is..

  1. Should I pay out the first 2 existing loans first before i take on the new loan.
  2. Refinance the old car loan using a 0% balance transfer credit card? Can I even do that?
  3. Leave them as is and the balance in my home loan offset account and pay out loans when due.
  4. Any other clever ideas.

Thanks for you help in advance.

Financial

Comments

  • ESEMCE on 09/02/2015 - 15:46
    +8

    Pay out your existing loans, and don't get another loan for a rapidly depreciating asset (ie a car)… ever!

    • patinadiary on 09/02/2015 - 17:13

      We been putting off buying a car for long and now definitely need another car. I don't wish to pay cash for a diminishing asset, instead choose to hold the funds in the offset home loan account instead? Interest rate on a car loan is 5.32%. Wouldn't it be better to hold $30k in the bank rather than spend it on a new car?

      • radicalvin on 09/02/2015 - 18:20
        +3

        Considering the average current savings interest rate is about 3.5%;
        mortgage about 4.5%;
        and you say car loan is 5.32%…

        How does it make sense to pay more interest on the car loan?

        Pay cash for the car, if you don't have the cash, don't get it.
        If your car has broken down and cannot be fixed, get a car within your cash limit.

        N.B. Stop getting bad debts…getting in debt is not always a bad thing. Good debts are those you use for "investments" to grow your financial wealth.

      • ESEMCE on 10/02/2015 - 08:01
        +5

        Don't buy a $30k car!
        Buy a $15k car or a $10k car or a 5k car..
        Keep it for 5 years and sell it off, then buy the car that you would have paid $30k for today for $10-15k.
        Even assuming it does have more maintenance required (which is actually unlikely) you're still thousands of dollars ahead!

        And why not pay cash for a diminishing asset? It's actually the best thing you can do unless you've got some incredible tax loophole.
        Getting a loan for a diminishing asset is worse! Over 5 years you'll have paid $40k for a car that was only worth $30k in the first place and will only be worth $15k then.
        Pay $15k now and resell for $7k in 5 years time who's worse off?
        Even better, pay $5k car now and sell it off in 5 years time for $3k.

  • travelwiz on 09/02/2015 - 16:16
    +2

    pay out these loans as fast as possible. The interest rate must be horrible. Surely you can pay a lump sum now without any penalty?

    • patinadiary on 09/02/2015 - 17:08

      Thanks
      Loan 1 is at 0% interest, there's a $4pm fee if there is a balance in the account.
      Loan 2 is at 9% but i'm thinking id rather hold the 11k as long as i can in my offest account rather than pay this out?

      • Devils Advocate on 09/02/2015 - 20:31
        +2

        Why would you offset a 4.5% loan to keep a 9% loan?

      • jaybmate on 09/02/2015 - 22:41
        +1

        Where did you get the idea to hold off paying out the loans to keep in offest account? It sounds like don't really know what the offset account does. Why would you want to hold it in your offset account? So you pay less interest on your home loan right? Well you are paying DOUBLE the amount of interest on the car loan.

        I know you may not feel as rich when the pretty numbers on the screen are lower (the offest account), but you'll know that you're SAVING money.

        You should also listen to the people saying that you shouldn't get a loan for a car. You already have the money for it. Anyway buying another car when you still owe 11k on the previous car, well.. I wouldn't recommend it.

  • RandomNinja on 09/02/2015 - 16:17
    +2

    Compare your interest rates for each loan and pay off the highest one first.

    Then take scubacoles advice and avoid getting another loan for a car!

    • patinadiary on 09/02/2015 - 17:11
      -1

      We been putting off buying a car for long and now definitely need another car. As scubacoles mentioned I don't wish to pay cash for a diminishing asset, instead choose to hold the funds in the offset home loan account instead?

      • sweefu on 09/02/2015 - 17:19

        Is the interest on your home loan higher than 9%?

        • patinadiary on 09/02/2015 - 17:29

          Loan 2 is at 9%, home loan is at ~4.5%, considering only 3 months are remaining, id rather hold the 11k for another 3 months in my offest account rather than pay this out now?

        • ilsan0 on 09/02/2015 - 20:35

          @gaurav1504:

          Do you use your car for work?
          In this scenario, Car on interest works, else listen to above posters.

        • Devils Advocate on 09/02/2015 - 21:23

          @ilsan:
          Even if that was the case, his marginal tax rate would have to be >50% to be better off since his car loan is 2X more expensive than his home loan

        • ilsan0 on 09/02/2015 - 21:32

          @Devils Advocate:

          Yeah true, OP got shafted with car loan.
          My current car loan is 5.3%

        • RandomNinja on 10/02/2015 - 09:53
          +1

          @gaurav1504:

          Very rough maths ahead!

          Your annual interest payment on the car loan of $11,000 is $990, so for 3 months ~$250. The same $11,000 in your home loan would attract ~$125 interest. Thus if you take money out of your offset and pay off your car loan now you could save $125.

          This assumes you weren't planning to take the $9k out of the offset in 3 months to pay off the car loan - in which case your savings would be something tiny (~$30?) which may not be worth the effort.

        • jaybmate on 10/02/2015 - 10:53

          @RandomNinja: the 9k is part of the 11k, which is like a forced payment which he will HAVE to pay in May if he doesn't earlier. (note to OP: best advice is to pay as EARLY as possible. You have the available cash in offset account so why not do it?

  • chumlee on 09/02/2015 - 21:29

    Check out Citibank. 4.9% for 3 years

  • jaybmate on 09/02/2015 - 22:39

    You should add your home loan to your list of loans above. And then list the interest rate next to each one. Then you pay off the one with the highest interest rate first.

  • patinadiary on 10/02/2015 - 11:59
    +4

    Thanks for all the suggestions.

    Steps taken:
    Paid out the Loan 2.
    Going back to the drawing board to find a cheaper car to finance.

    • RandomNinja on 10/02/2015 - 22:03

      Have you considered second hand? Even a year old can save you thousands

      • patinadiary on 11/02/2015 - 10:05

        Mostly looking for dealer demos, as they are good value for their money. I can get a car more than a year old as most leasing companies have clauses against what you can lease. Vanilla car loans are at a much higher rate than 5.32%

    • jaybmate on 10/02/2015 - 23:16
      +1

      Good move with paying out loan and looking for a cheaper car. My suggestion now would be to get a car without finance and pay it all up front with further money out of your offest account. As it is most likely any finance you get, the interest rate will be higher than your home loan interest rate. If you dont have enough available or you fell youll end up paying too much interest on the home loan, you should really thinkabout whether you actually really need another car right now. Also RandomNinjas comment above is good advice.

      • patinadiary on 11/02/2015 - 10:02

        I'm getting the car on a novated lease the car through sal sacrifice, the interest rate is 5.32 for 3 years, this way ill save on a fair bit of tax.

        • ESEMCE on 11/02/2015 - 10:20

          You have to be earning some decent coin to make novated lease by salary sacrifice worth more than the savings made by buying a 3+ year old car outright.

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