Repay overdraft vs buy a car that's cheaper to run

sjg666

I did a search for this but couldn't see anything similar so I apologise if this has been talked about before.

I left uni in 2009 with an overdraft of £1500 and credit card of £300.

I am now in a full-time job (though not a job with a graduate salary) but I appreciate that this is a better situation than most.

I am currently paying to run a 2litre automatic car (which is far too big for me but I am grateful for my other halfs parents long-term loaning it to me after my car broke completely as I drive 18-20 miles to work each day). This car is currently costing around £150 a month in petrol, £80 a month insurance, £240 a year tax and I have never had an MOT which has cost me less than £100.

I am sure that switching to a smaller car would save me a lot of money.

I am potentially (not confirmed yet) going to be able to claim £2500 from my estate agents for not really doing their job properly and plan to pay off my boyfriends overdraft of £1000 for which he has to pay 10% of the amount overdrawn each month in interest.

But I don't know whether to pay off my overdraft also (I only pay about £2 a month in interest) or to use the money on a car that will be far cheaper to run which would save me the money to gradually reduce my overdraft in the long-term in any event?

I am not worried about the credit card debt as in the coming months I plan to (hopefully) do a 0% balance transfer to a new card and pay it off within the allotted 0% time to get rid of this debt altogether.

Any advice would be appreciated.

NeverAgain_2

Don't over-estimate how much a more economical car will save you.

An extra 10mpg - not easy to achieve - will save about £500 a year in fuel costs.

All cars use lots of fuel from cold starts.

So you may find the car you buy which is really good on a run might not be such a big improvement on your commute.

Tixy

It really depends more on the figures involved.
How much would a cheaper car cost you outlay? how much less would the insurance be a month and how much less would the tax be (I would probably just base your calcs on those reductions rather than counting fuel costs as neveragain says above).

If you use the money for the new car, how much can you then afford to pay off your overdraft each month? therefore how long until the overdraft is repaid? is the overdraft cost likely to rise before that time (eg if it was a student account that will go up in price).

If you could save for example £30 in insurance a month and £10 in car tax a month then the overall savings might be worthwhile, so might be best to identify the sort of car you would go for and get some insurancequotes. Also remember to factor in that for the rest of this car insurance year the costs may be higher if you want to stick with the same insurer you have and them amend the current policy.

Arwen

I downgraded from an Astra to a Clio, then upgraded the Clio to a Vauxhall Meriva. I am noticing practically NO difference in fuel costs, road tax increase and insurance is very minimal(plan to shop about at renewal date anyway)

I upgraded cos I am 25 miles to work, and the Clio was a piece of !!!!, and cost a fortune for servicing.:mad:

jonjamie1970

Arwen wrote: »

I downgraded from an Astra to a Clio, then upgraded the Clio to a Vauxhall Meriva. I am noticing practically NO difference in fuel costs, road tax increase and insurance is very minimal(plan to shop about at renewal date anyway)

I upgraded cos I am 25 miles to work, and the Clio was a piece of !!!!, and cost a fortune for servicing.:mad:

Hardly big differences in those cars though to be fair.

surrey648

Arwen wrote: »

I downgraded from an Astra to a Clio, then upgraded the Clio to a Vauxhall Meriva. I am noticing practically NO difference in fuel costs, road tax increase and insurance is very minimal(plan to shop about at renewal date anyway)

I upgraded cos I am 25 miles to work, and the Clio was a piece of !!!!, and cost a fortune for servicing.:mad:

I agree - to reduce my costs I also went from a 2L injection, to a 1.2 Clio - my fuel costs went up!! My original car managed better fuel efficiency by 15-20 miles per gallon!

I've now gone to a 1.5injection and back up to 49-53MPG! Admittedly the more fuel efficient cars are both Diesel (the Clio was petrol) - but even with the additional pence per litre, road tax, insurance... I'm still better off!

So, I think we're agreed - don't buy a Clio!! :rotfl:

Hannah_10

Sarah it's very sensible maths to consider the cost differential of buying a different car but I wouldn't, personally speaking. I may be an extreme case but it has been my misfortune to weather out several disasters in my life and I'm not even that much older than you yet. I have learned that stuff like your employer folding, being made homeless, getting ill, a family crisis etc tends to happen when you really aren't expecting it and that any managable debt you have can fester pretty rapidly from there. I would go for the security-led approach and clear the debt, then get a car. Even if that is technically a bit more expensive than getting the car first you have much less to lose. Boyfriend should be planning to pay you back and so you can pop his repayments into a savings account, along with anything you can manage to squirrel away, and you should have a little for a cheap and practical car fairly soon. Then with all the money you have floating about because you're not saving for a car, and all the money from not paying Audi type running costs, you can save a little fund that you can use instead of a credit card (interest free that way).

stqueen

Sarah,

I would agree with Hannah above in that clearing your debt first is probably the most sensible way to go (even though your debts are relatively small, they can easily escalate if you keep in the mindset that having them is 'ok'.) Also, if you have an opportunity to clear them now, you will be glad you did in the long term.

However, I was in a similar situation to you a month or so back, I was running a 2.0L petrol car, doing a 70 mile round commute each day, spending around £280 a month on fuel. After much thought, budgeting and cost analysis , I swapped to a 1.7L diesel. I was able to buy the tax (£30 a year) and a year's insurance upfront in one payment, and I have saved a lot of money before even looking at the fuel savings. I was also able to make a straight swap for the car - so effectively I didn't 'buy' a new car. So it can work. . . but as Tixy says, do your sums, think beyond the savings you will make on fuel (which will be relatively minimal) and make an informed decision based on overall cost savings (tax, insurance, fuel, sevicing etc.)

Good luck ! :T