should I borrow or spend savings

CJR

I am buying a new car and am offered a loan at 3.55% flat- over 7% apr?
I have a choice - I can buy it cash but that costs me the lost interest (3.6% net) PA for 3 years. I thought that this would be an easy comparison but I am bamboozling myself. If I borrowed, say £20k, and make the payments from my savings I retain a 'monthly diminishing' capital amount which earns interest at 3.6% p.a. which is added back to the balance at year end. When I work this out it appears that borrowing is cheaper - I can't believe this - I must be doing something wrong. Am I? (This is my first loan since.....whenever, so I'm completely new to these calculations) thanks for any expert help. CJR

grumbler

Use savings!
You cannot benefit from borrowing money at APR higher than your savings net AER. I cannot fully understand your reasoning, but probably you forgot about the interest you pay on the £20K borrowed (that is £20K*3.55%*3=£2130).

P.S. I think I understand now what you mean: 3.6%>3.55%. In this case don't forget that your capital is getting smaller and smaller. For examplee, after 1.5 years you'll have only about 1/2 of the original capital left and will receive only about 1/2 of the current interest. However, you keep on paying full 3.55% p.a. on the original amount £20K during all 3 years.

[Deleted User]

I suggest you LEND the money to yourself from your own savings and then set up a direct debit as you would for any other loan to ensure you PAY IT BACK.

Mark7799

Use savings as long as you have the self-discipline to pay it back.