Financing a Car With Your Home Loan
In the last two years, after the world has been struck with
credit crunch in 2008, it became increasingly difficult for
people to get the loan deals they need. South Africa is no
exception from this. One of the options that certain financial
institutions have turned to in order to provide their customers
with the credits they need is the option of financing your
car credit through your home loan. This crediting option has
been debated a lot, and here we will try to point out the
pros and the cons of this option.
The Possibility for Financing
Before you get car loan that you will finance through your
home loan, you will have to prove to your bank that you have
the capability to take the additional financial pressure on
your monthly installment. You will need to have enough scope
in your loan to valuation ratio. If you`re finances are stable,
the bank will most likely allow you to take this loan, and
this is the moment you need consider other things.
Warnings Against This Financing
Most people who are vary of this financing option are worrying
because the home loan is a long term loan, while the car loan
is a medium term, or even a short term one. However if you
calculate the increase in your home loan rate, and compare
it to the amount of money you would need to finance a purchase
of a car differently, you will find that this is a much cheaper
option.
Keep in Mind the Interest
The nice thing about these loans is that the banks are approving
them at the same interest rates as home loans. These interest
rates are about 3% to 4% lower then the ones offered for car
loans. However, as a home loan has a much longer scope, paying
the car credit over that whole scope would be unadvisable
and unprofitable.
The Solution
The secret of these loans is that the banks are offering
to let you pay your car loan along with your home
loan, at the same rate as the home loan, but, and this
is a very important but, at a time span that is standard for
a normal car loan. That means you will be paying this credit
for only about 5 years or so, but with the credit rate of
your home loan. So, after 5 years you will pay off your car,
and go on paying off your home loan.
What is in it for the Banks
Very simply, the banks have an interest to tie one of your
loans to another, as that will bring them additional guarantees
that you will respect your financial obligations.
And remember, if you opt for this loan, you will need to
have financial discipline. This is necessary, as these loans
present an additional burden on your monthly budget. However,
the reduced interest rates are more then enough to justify
this burdening of your budget, as in the long term, it will
inevitably bring you profit.
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