Canadian Money Forum banner

Any issues with taking out loans?

4K views 11 replies 7 participants last post by  sags 
#1 ·
So, as it looks like I will need to replace my 2002 vehicle, and I figure that I can make more money with the cash in my hands rather than give it up a car dealer, I'll be looking to finance.

With no job, no pension, but only my wife's income and our investments and house, will there be a more difficult or stringent test for financing a depreciating asset purchase?
 
#2 ·
Car loans are fairly easy to get, from what I've seen and heard...if you have a pulse, they can get you a loan...

The real question is, can they get you a loan at an interest rate that makes sense. That depends on your credit rating, assets, etc. If you've got good credit and assets, you probably get a good interest rate.
 
#4 ·
Well, I will have income, but not work income. But, it looks like we will buy this vehicle before she retires as she told me that the end of this year is her tentative timeline. So, at least she is getting more comfortable with this big change.
 
#6 ·
Sometimes car loans can make financial sense, due to whatever configuration of incentives the dealer has at that moment.

But, if your financial situation allows, it can make more sense to:
1. Liquidate nonregistered investments (ideally at a tax loss or close to book value, so no bad tax implications) of $x
2. Purchase car, including paying $x in cash.
3. Borrow $x from home equity
4. Repurchase similar investments to the tune of $x

You end up in the same place - car, investments as before, loan of $x - but now the interest is tax deductible since the proceeds were used for investment purposes (the investments need to have a reasonably forseeable likelihood of generating income). Of course the details depend the interest rates and car loan incentives involved, but all other things being equal, interest is better if it is tax-deductible. The issue is not the house vs car loan (assuming of course you don't intend to default), but that your can get a home equity loan in cash to establish the paper trail for the proceeds, while you can't (easily) get the car loan in cash.
 
#7 ·
Sometimes car loans can make financial sense, due to whatever configuration of incentives the dealer has at that moment.

But, if your financial situation allows, it can make more sense to:
1. Liquidate nonregistered investments (ideally at a tax loss or close to book value, so no bad tax implications) of $x
2. Purchase car, including paying $x in cash.
3. Borrow $x from home equity
4. Repurchase similar investments to the tune of $x

You end up in the same place - car, investments as before, loan of $x - but now the interest is tax deductible ...
Not a bad idea ... though there are some wrinkles to stay on top of.

The first is that if sold for a CL, assuming one wants to use the CL in the tax year the NR investments were sold - one will have to be sure the replacement investments as well as what is done in the registered accounts won't trigger the superficial loss rules.
http://www.taxtips.ca/personaltax/investing/taxtreatment/shares.htm#superficialloss

There's also the work to be sure the investments/actions taken keep the interest tax deductible.
http://www.milliondollarjourney.com/key-tax-considerations-on-an-investment-loan.htm


Nothing exceptionally difficult but it is a bit of work.


Cheers
 
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top