Geelong Advertiser

Choosing carefully can put a brake on car expenses

- with PAUL CLITHEROE journo@geelongadv­ertiser.com.au

AROUND 100,000 new cars are sold in Australia each month, and buyers often invest plenty of time finding the right vehicle. Along with price and performanc­e it’s important to consider running costs. Some cars can lighten their owner’s wallets by hundreds of dollars each week.

Money watchdog ASIC has cautioned that focusing on price alone can lead to poor choices in the car yard. That’s because cars come with a raft of ongoing expenses, which vary widely between makes and models.

The RACV’s annual running costs survey, which takes into account all the expenses associated with owning a car including depreciati­on, found the Suzuki Celerio is one of the cheapest cars to own among the 270 vehicles surveyed. It will set you back about $100.78 each week. At the other end of the scale, the Ford Mustang Fastback (5 litre model) can leave drivers out of pocket by $314.83 per week.

Exactly how much your car will cost depends on the distance driven, your choice of insurer (do shop around) and so on. The way we finance a car can also have a big impact on our hip pocket, and it pays to weigh up options.

Many car loans have interest rates below 7 per cent, and some offer fee-free extra repayments to help pay off the loan sooner.

A different strategy is to use home equity to finance a new car, though it’s not always the cheapest solution.

Your mortgage is likely to come at a lower interest rate than a car loan, but as home loans are paid off over the long term, you could end up paying considerab­ly more in overall interest than you would with a separate car loan.

As a guide, paying for a $30,000 vehicle using a car loan costing 7 per cent can mean paying total interest of $5642 over the typical fiveyear term.

Alternativ­ely, a home owner could add an extra $30,000 to a $300,000 mortgage to fund the same car. Even assuming a loan rate of just 4 per cent, this could mean paying an extra $17,505 in total interest over a 25-year term.

The best way around this problem is to consistent­ly pay a bit extra off the mortgage, but this calls for discipline.

This all highlights the importance of shopping around for the car finance option that will see you save money. Our cars depreciate rapidly, so it makes sense to pay them off as quickly as possible. And if you have to own a car, owning the cheapest one your ego can live with is a great plan.

To make an informed decision check out ASIC’s MoneySmart Cars app. It works out the real cost of buying a car including interest and running costs. Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentato­r for Money Magazine.

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