|November 3, 2016||0|
Paul wanted to upgrade his work ute. It was old, business was booming and he knew his old ute wasn’t doing him any favours getting new work. The old Hilux couldn’t keep up with the demand of his growing and successful business and he needed more towing capacity, as well as a larger tray to fit more machinery. The problem was, the quote from the car yard for a trade in wouldn’t even cover how much he owed.
“What do I do?! I thought I’d get heaps more on the car but the trade in quote means I’ll still have a few grand left owing on the truck!”
Trading in your car can be an exciting time, new wheels means more capacity to do more work. You can’t help but feel like your business is doing you proud when it can afford shiny new equipment and investing in your business is investing in your future.
The issue is that cars are losing their value faster than ever – Cars are devaluing faster than ever, so we have to be careful that when we finance Paul’s upgrade we take this shortfall into account!
I asked Steve “Did you put a large balloon payment to the end of your term?”
I explained to Paul that this was called ‘Negative Equity’ and we’d be able to roll the remaining debt owing into the new finance with no issues, but we were going to build in only a small residual this time (compared to his last finance arrangement), and accelerate his repayments so that he wouldn’t fall into the same trap. We only allocated 15% to the balloon instead of the normal 30% as he really wears his cars down. Given rates had dropped so much since his last car finance the repayment was only $40 per month more. “Gee that’s ok, and now I can rest assured this won’t happen again in 5 years as I’ll be ahead in my repayments!”
We like to know how your business operates so that we can understand and strategize your finances in advance. Simple tweaks like this won’t be noticed over the short term, but can deliver benefits at upgrade time by not punching you in the wallet!
At I Love Loans, we understand the fine print so you don’t have to.