Calculators & Tools
Gareth Lane Updated Dec 19, 2022
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But have you considered the long term effects of borrowing just that little bit more instead of investing the difference?
Follow me through the maths for the massive difference it makes over time.
Lets first get some options together for cars, I’ve borrowed these from Wheels “Best Value Cars” awards page
A recent survey by Australian consumer site Canstar Blue found that Aussies spend, on average, $40,128 on a new car and then hold onto that new car for around six years.
– $16,605 buys you the cheapest BRAND NEW, yes Brand New Toyota. – Toyota Yaris
– $55,420 buys you the most popular car in Australia, Brand New – Toyota Hilux
– $138,790 gets you the brand new Toyota Landcruiser 300 series.
Of course there is an argument for “I want one” and of course an argument for “I need one” but the point of this article is to ask yourself “do I REALLY need one?”, even saving $10,000 makes a huge difference.
Assumptions
The point of the article is to demonstrate, all things being equal, the huge difference a investing a few bucks each month can make over the long term.
Total Repaid: $20,201.40
Total Interest: $3,596.40
Monthly Amount: $336.69
Total Repaid: $67,423.20
Total Interest: $12,003.20
Monthly Amount: $1,123.72
Total Repaid: $168,849.60
Total Interest: $30,059.60
Monthly Amount: $2,814.16
Now lets consider the options if you chose the Yaris over the Landcruiser and invested the difference.
The upfront difference between the Yaris and the Landcruiser is $122,185 ($138,790 less $16,605)
But we don’t have $122,185 to invest today, so we’ll use the difference in the monthly loan repayment – $2477.47 ($2814.16 less $336.69)
If we invest the $2427.47 in a fund generating 8% per annum over 5 years we will have $178,362 to show for it! That’s enough to buy another Yaris AND the Landcruiser.
What’s more if we don’t cash out and keep paying the same amount each month and let it run, look at what happens over the long term
– After 10 years = $444,096
– After 20 years = $1,429,829
The upfront difference between the Hilux and the Landcruiser is $83,370 ($138,790 less $55,420)
The difference in the monthly loan repayment – $1,690.44 ($2814.16 less $1,123.72)
If we invest the $1,690.44 in a fund generating 8% per annum over 5 years we will have $124,208 to show for it! Thats enough to buy another two Hilux’s!
What’s more if we don’t cash out and keep paying the same amount each month and let it run, look at what happens over the long term
– After 10 years = $309,259
– After 20 years = $995,703
How is this possible? Its a little hard to believe isn’t it, that such a small difference over time can make such a huge difference down the line. The answer is Compound Interest and a little bit of sacrifice when it comes to choosing your next car.
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