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Loan a brand new car or Invest your money first?

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Having your own car is awesome! Some people think that you are successful already if you have a car. You can take a selfie while driving with seat-belt on of course, take pictures of the traffic and put #TrafficinEDSA in your Instagram and Facebook posts for you to voice out your irritation for waiting for almost 3 hours without any movement, and most of all you can bring your friends and family to different places with comfort and safety. But, before getting a car, you have to consider if you are financially ready. Can you really sustain the monthly payment?  Gasoline expenses and maintenance expenses.One of my senior Financial Advisers told me that if you will loan a car from the bank, you must have a ready cash that is half of the price of the car so that if emergency expenses happen you can still pay your monthly amortization for your car loan otherwise the bank will repossess you car. These days, cars can be easily acquired through bank loans. There are promos that you can only pay less than Ph50,000 and you can take home the car already and just pay the monthly amortization. This is no wonder that heavy traffic these days are worst. Anyway, some people think that traffic is only a state of mind.

As a Financial Literacy Advocate, I want to suggest that you practice delayed gratification. It is wiser to pay it in cash and grow your money as well. I created a comparative analysis of loaning from a bank to purchase a car as compared if you invest your money first and you can buy a brand new car by paying it in cash and you can arrange better terms.

Let’s say you will apply a bank loan to purchase The All-new VIOS  2016 1.5 G A/T with SRP of  Ph880,000.00. Here is the sample computation if you will loan it from the bank.

2016%5c00-all-new-2013-toyota-vios-sedan

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Let’s see how it looks like if we will break it down including car insurance and gasoline. My estimate for Gas expense is Ph5,000 per month only. and 30k per year for car insurance.

vios-expenses

Once you got the car out of the car dealer, the price of your car depreciates already. It is assumed that it will depreciate 10% every year. So after 5 years, if you sell your car, it will be only Ph440,000.00 or you lose the 50% the value of the price the original price of Ph880,000.00. You spent a total of Ph1,076,000 and Ph425,000 for the gas and car insurance and after 5 years your car’s value will be only Ph440,000.

loss-vios

What if what you did was you invested first the money in Insular Life’s Wealth Assure Plan?

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Let’s say you will invest annually your annual amortization of Ph180,000 per year and top-up your 20% Downpayment, Gas expenses and Car Insurance will be spread equally in 5 years.

This is how it looks:

wealth-assure-5-years

This is the illustrative growth of your money if you invest in Wealth Assure first after 5 years and onwards. Assumed age of the investor is 34 years old. This investment has also a guaranteed Ph1,000,000 if death comes that will be added to his Full withdrawal value for the beneficiaries of the policy owner.

wealth-assure-v-vios

If the investment earns 10% per year, your money will keep on growing. If you delayed loaning a car from the bank, you will have a lot more of options because you have cash with you. You can partially withdraw later on and buy a car and pay it in cash and the remaining fund n Wealth Assure will keep on growing. You can arrange also for better terms for you to avoid high interest because you have a fund in Wealth Assure that can be withdrawn.

wealth-assure-winning-vs-vios

10% annual return is not guaranteed but this is way better than losing your money. As of August 5, 2016 Year to Date, our Equity Fund earns 15.19% already.

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Now, you can choose if you will loan a car now or you can delay it and invest first for you to benefit in the future. You should use correctly your hard-earned money. Getting a car should be planned very well don’t be fooled by people saying that your car is an asset. It can be an asset if it will generate income to you like making it as Taxi or Uber. I hope that you learn something by reading my blog.

Practice temporary pain for permanent gain.

To know more how to grow your money with Wealth Assure. Kindly sign up to this link and I will contact you. https://goo.gl/forms/17yU7e7p2Vy50ulO2

Archie M. Yuki
Financial Adviser,Investment Consultant and Insurance Specialist
The Insular Life Assurance Ltd.,Co.
4th floor Karina Bldg., No. 33 Shaw Blvd. Pasig City
Tel No. 571-3274
Mobile Number. 0917-5769607, 0923-4941362
Email Address: archieyuki30@gmail.com
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