Refer to my previous post about the cheapest consumer debt: Mortgage – The Cheapest Debt , it is wise to keep the mortgage as our only debt.

Most people hesitate whether to buy a new car first or a house? Let’s see the pro and con:

car vs house
Car Vs. House

CarHouse
Maintenance, petrol, servicing cost about RM300-500/monthMaintenance, electricity, water bill, assessment cost about
RM200/month
Most likely Depreciate in valueMost likely Appreciate in Value
Loan: Hire Purchase Agreement
Only a little bit discount if we want to pay advanced installment
Higher interest charge
Loan: Mortgage
Advanced payment will settle on the principle loan
Daily rest
Lower interest charge

You should buy the house first, then serve the installment for a few years. After you build up more equity in the mortgage, you can refinance the house to higher loan amount. The extra cash you get at that time can be used to buy your dream car.

That way, you kill two birds with one stone. First, you save on the interest because mortgage debt usually have the lowest interest. Second, you delay the car purchase which will be a long term liability anyway. At a later time, you would most probably get a better models with the same amount of money.


KCLau
KCLau

Personal finance author and trainer

    20 replies to "Buy House before Car"

    • Jennifer

      Hi KC

      Thank you for your article on “buy house before car”. I thought that the article is thought provoking and gives our young working adults something to think about when they make their first big financial commitment. I wonder how to link your article to my Facebook so that more of my friends get to read it? I mean this particular article and not just promoting your website? Would you be able to help?

      • KCLau

        You can copy the link shown in the URL address bar of your web browser, and paste it in your Facebook status.

        Thanks for asking

        • Eric Lim

          Hi Kc,
          I am back to hometown kuching. My decision 2years ago is keep the car for my parent use and when I come back kuching I still got car to use and no need to worried get a problem second hand car. And now my parent drive another car which they bought it from his friend only 6k by cash which is very good condition. And I actually invest for a condo now it’s appreciate in values. Happy stay in condo. And my Terrance house appreciate more than 150k if sell it now. I am thinking to refinance the house and do some business is it a good idea or upgrade to bigger house? Pls help

    • jflee169

      Hi KC,
      I am currently thinking to refinance my condo and the additional refinance to buy a car which is replacing my 9 year old car. Based on the information provided, the HP rate is around 2.45% and loan RM 100k for 9 years. The monthly instalment would be around RM 1130. My current housing loan with HSBC is a flexi loan with outstanding amount of RM 380k++ and paying RM 2300 per month. The lock-in period is 5 year which is end of 2014. I understand there will be a penalty if settle within the lock-in period. My current condo value has increase from RM 400k to RM 650k. The following is my plans:
      (i) Plan A
      Negotiate with the bank to waive the penalty for early settlement within the lock-in period. Use the additional cash from the refinance package to pay off the car. Meanwhile, the monthly repayment relatively increase. However, I also need to factor in the stamp duty, legal fee and valuation fee.
      (ii) Plan B
      Get the HP loan and pay accordingly. After the lock-in period refinance the condo and settle HP loan.

      Your valuable advise is highly appreciated.

      JF

    • Rudy

      Hi KC,
      I am 46 yo, own 3 cars which is one for me, my wife and my younger sister to drive my mother around. I have 2 bungalows, a double storey terrace, 2unit condos and 1 medium cost flat. Recently I sold a low cost flat and earn 100K in cash. I really crazy about to own a 2nd hand Mercedes sport. I felt bit strange with my desire coz when I was young I only bought a station wagon instead of sport car. My friend said that my behavior is normal as to balance up with my age as I am getting older. I am in the dark now, could u give me some advice weather to invest more on property or enjoy my car enthusiasm.

      • KCLau

        Hi Rudy,
        We all have a desire for something.
        It is nothing wrong to buy your dream car, as long as you had planned for it. If it is within your budget, please go ahead.

    • Eric

      hello KC,

      I am 29 years old and currently own a medium cost terrace house in Kuching. By the way, i also own a nasional car and still leave 4 years to pay for the loan. I am just wondering should i refinancing the house for renovation purpose or sell the car as i am no longer using it. ( working in oversea )

      • KCLau

        Please sell the car if you don’t need it anymore (it depreciates). You can buy back the same model when you come back in the future and it will definitely cost less.
        Refinancing for renovation? Since you are at oversea, why do you need to renovate your house? is it for your family?

        • Eric Lim

          thanks for your reply KC. I agreed with u car ( drepreciation ) but i still wondering if i sell the car which still have 4 years loan to go..my parent will dun have any transport already. Do you suggest me to sell the car with loan n reloan another cheaper car for my parent? By the way, if i am not renovate the house can i still reloan the house since the interest ( BLR ) is quite low now. KIndly help .

    • Julian

      I just bought a unit of high rise condominium in Penang. This is a new launching property and i found that it’s great in value and good location will definetely allow the value to appreciate in long term. Somehow, i m still driving my old cars that i bought in year 1999 and i find no reason to buy a new car since the existing car i m driving now still in good condition and fun driving around.

    • Suanze

      I have a fren who doing well in his career and his boss proposed him as a business development manager which he should always drive here and there to their branches. His current car is old and for those who have same experience will understand that the old car to drive from KL to Perak to Seremban to Melacca & heading to JB everyweek is terrible. So he was thinking to change a new car but at the same time he is preparing for his wedding and would like to own a house….He ask for my advice…I hv no idea… Pls advice…

      • KCLau

        Hi Suanze,

        It depends on his priority. Of course, it makes financial sense to buy a house first because property will appreciate and cars definitely don’t appreciate in value.
        But if he desperately need a better car, he will need to sacrifice some financial resources.

    • Lai

      hi KC,

      i have some friends and also relatives who advise me to buy a good car, even if pay back in 7 years, just think of it as renting the car, use my extra cash monthly to get property. meaning using the 7 years to pay back to buy time. is this idea correct?

      i mean all these while, i always think a car is a liability, and can never understand their point. maybe because i am an employee, and some of them are actually self employed. maybe it is the tax reason??

      • KCLau

        Hi Lai,

        Some people need a good car as an investment – these people are businessmen, entrepreneurs, salesperson who need to give confidence to their employees and customers.
        For an employee, car is indeed a liability.

    • Safnate

      Interesting Article,
      I am a guy age 24, Currently renting, I am planning to buy car, but at the same time i need to buy a house as an investment.
      I can’t afford to buy both. But please provide any advise.

      • KCLau

        @ Safnate,

        We all have limited financial resource. So you must decide for yourself which one is more important. We have different values in life.
        If I am in your position, with my own set of values, I will buy the house first.

        • safnate

          @ KCLau,

          Thanks 4ur reply!
          I decided to buy a car first, as i knock off very late @ work, cause i study aftet working hours. I am currently grooming my career. I bought a used car cash, it was a good deal, and used the money left to pay off my debts, If u want to save money you must pay your debts first.Now i am saving to buy my house.

    • Relax

      One more thing : Car (transport) has alternatives like bikes, train, bus, carpool

      House, you can choose somewhere nearer to workplace.

      What do you think?

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