Having the freedom to go wherever you want, whenever you want, is one of the most important milestones of adulthood – at least to teenagers, who have spent their entire life until this point shepperded from point A to point B by loved ones.
When you are young, being the owner of your very own car is the ultimate dream, and it has been considered a rite of passage for many decades. But has that changed over recent years?
However, data from the recent Household, Income and Labour Dynamics in Australia (HILDA) survey shows us that between 2011 and 2016, the number of young Australians getting their driver’s license at the ages of 18 and 19 has actually decreased six per cent.
A 2019 article, Millennial mindset exacerbates car sales slide, published in The Australian Financial Review, discusses this decline in car sales, attributing it to a “greater reluctance by young people to become car owners.” There could be a number of reasons behind this decline, including the cost and increasing regulation and requirements around getting licenced. Also, the uptick in ride sharing and online delivery services such as Uber and UberEats might mean that people don’t require cars as much as they used.
Another potential reason? Young people may be putting their time, energy and money towards buying property instead.
Why you should ditch your car for a house deposit instead
While a large number of Aussies still place huge importance on owning a car, more and more young people are also starting to realise the benefits of forgoing personal modes of transport, all in the name of home ownership.
While real estate is generally always a sound investment, buying a car might not be. It’s common knowledge that once you purchase a car and drive it away, it immediately depreciates in value. This means that car is an asset – one that declines in value every day – rather than being an investment.
The catch here is that the longer you have your car, the less it’s worth. This is due to that depreciation we mentioned, which is the result of regular wear and tear, as mileage racks up, and as more services and fixes are required.
Another little-known fact is that your car loan repayments are doing you no favours with the bank either. While it can be helpful to your credit rating to be paying off a car (provided you are making your repayments on time), the more financial obligations you have each week, the less money a bank or lender is going to be willing to lend you.
For instance, it is estimated that every $5,000 in personal debt you have, reduces your borrowing power by up to $20,000. Having a $20,000 car loan could mean a bank is willing to lend you $80,000 less than it would if you didn’t have a car.
If you are trying to pay off a car loan while simultaneously trying to put money aside to buy a home or an investment property, you might find yourself saving for quite some time. As anyone who owns or has owned a car before knows, you tend to constantly have one hand in your pocket. Car servicing, registration, petrol and general upkeep can all be quite costly.
If you have read this and you are thinking with regret about the car parked in your garage or driveway, don’t despair. Instead, consider whether you could live without it? By selling your car, you will not only enjoy a cash windfall that could be used to help you purchase a property, you will also have less financial obligations every week in terms of repayments, petrol and servicing.
Remember: the sooner you start working towards the dream of owning your own property, the sooner it will happen. If you would like to discuss your overall financial situation to see how soon you could buy a home or investment property, contact us today.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation or needs before making any decisions based on this information.
Louisa J Sanghera is a credit representative (437236) of BLSSA Pty Ltd AC 117651760 (Australian Credit Licence No. 391237).
Louisa Sanghera is a Finance Broker for Residential Mortgages, Vehicle and Asset Finance, Commercial Lending and Budgeting and Cashflow Coaching with Zippy Financial.
She has gained more than 30 years in the Banking and Finance Industry, and since founding Zippy Financial, has become a multi award nominated expert in the field of finance featuring regularly in industry press and speaking at finance and investment seminars across the country.