Of all the things people could buy, house and car are always on top of the list. They are universal assets, equally perceived as a fundamental success when ones could buy by their own money. As they are often equally valued, the intriguing question arises as which one is a worthier purchase when the budget is limited. There is no right or wrong in choosing either of them, however these three points would help clarify whether the house or the car is your right choice.
Necessity
Put your ego aside for a moment, and consider whether the asset is actually necessary or not. If you are still paying monthly rent to live, a new house or condo would be a worthier choice. Turn those rents into installments for the new asset, to live in a place that you can wholeheartedly call, a home. One advantage house has over car is its price that keeps rising as a nature of real estate, in contrary car’s will only depreciate. Afterward, your heirs could also inherit the property for their own uses, or you could sell it and make a decent profit.
On the other hand, if you already have a home, perhaps living with family, and your place happens to be distant from the main road or remote from your workplace in the inner city, then a car would be the right choice. Especially if you are a woman who comes back home late at night from work, and needs to walk down a long dark alley to reach the home, a personal vehicle would be necessary.
Financial Ability
Once you have decided which asset to buy, the next step is assessing your financial ability. To negate financial risks, your monthly repayments for the loan shouldn’t exceed 40-60% of your salary; however, to stay in a safe zone, 30% is the maximum. The amount of debt you can take also depends on your level of income; the more earnings, the larger loan size you can leverage on. Your financial ability represents how large a new house or how luxury a car you should pursue. Assume you earn 30,000 baht per month, as mentioned, the monthly installment shouldn’t exceed 40% which is 12,000 baht. With this financial ability, you can apply for a home loan 1.2 million baht with 20-year term, or a car priced at 600,000 baht with 5-year repayment. Those are a townhouse in the suburb and an eco-car, to illustrate.
3 Daily Cost Savings For A New Home
Down Payment
The third point to bear in mind is the down payment. You cannot apply a loan for the full amount as banks usually limit the credit line. Therefore, you need to have a sum of money before purchasing a house or a car. In general, you should spare at least 20% of the house price, or 25% of the car price, for the down payment. To elaborate, if you plan to buy a 2-million-baht house in the next two years, you would need 400,000 baht for the down payment; converted into monthly savings, you need to put around 16,000-17,000 baht into account every month from the start. If that saving amount seems a little too high, you might want to extend your saving period, from two to three years, or lower down your target from a 2-million to 1.5-million-baht house, for a more flexible pursuit.
Choosing between a new house or a new car takes some time to come to a conclusion, as both are highly valued in the norms of modern society. Without the anchor of guidelines, our desires tend to sway between the two. It’s a large capital not to be spent on the ground of ego, but the logic and necessity which align with your financial ability. Hence, these three checkboxes would help clarify your decision. For more confidence in buying properties, you can read Buying Guides or gain insights from the daily Property News.
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The article is written by Nitchanee Chantasart, CFP of Kasikorn Bank, and translated by Sitth Chongprasobtam
