Should I Borrow to Buy a Motor Vehicle?


I’m often asked by my clients whether they should borrow money to buy a motor vehicle. The answer is “it depends”.  As a rapidly depreciating asset many people would be hesitant to go into debt for a car. However, as a tool and as a resalable asset there can be good reason to take out a loan to purchase one. There are many things to consider when making this decision:

  • Do you have enough money in the bank to pay cash?
  • Is it worth your while to go into debt to purchase a car? Generally any loan you take out will cost you more than the purchase price due to the additional interest. Saving the money could be a better option.
  • If you do have enough to pay cash could that money be better used elsewhere?
  • If you pay cash for your car make sure you have a cash reserve for other expenses and emergencies. Although debt is not always ideal it can help you to avoid cash flow issues.
  • Will the car be used for business purposes?
  • Cars can come under a business expense so there can be tax advantages that can offset the costs of borrowing.
  • Is there an ability to salary package a vehicle?
  • Sometimes you can purchase a car for company use with your pre-taxed income. This means you might pay less income tax while you’re paying off your car.
  • Will you borrow against your house, take out a personal loan or a enter into a lease?
  • Whatever loan you choose you should be aware of the risks. If you borrow against your house, you are putting that asset at risk. If you enter into a lease but want to own the vehicle eventually, this will be much more costly than purchasing.
  • How much are you willing to spend?
  • Is this a realistic figure? You might want an expensive car but make sure you can afford it. Your car will dramatically reduce in value as soon as you purchase it so it’s not as simple as selling it if you can’t afford the repayments.

I always suggest a meeting with your financial planner to discuss the pros and cons of each option so an informed decision can be made.


The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.