Prob a really silly question

ryanryan

Hi,

This is probably a really silly question, but....

I am due to inherit anything from £10,000-£15,000 and I currently have a Peaugeot car on finance which is worth around £10,500

APR on this is 11.1% I am paying £288 a month and have around 50 months left. Alt I can pay £12,800 settlement figure now.

Is the best "investment" for me at this stage to pay off the car in full, in theory saving me the £288 a month and given me collateral in the car when I come to sell it in a few years.

Alternatively I could bank / invest the cash and continue to pay the £288 but the difference in value of the car and settlement figure will continue to grow, as I am doing 16,000-20,000 miles per year.

I think I have just answered my own question, but a few agreements would help.

The only other debt I have is around £900 on a credit card which I will also settle which either route I go.

superpennycounter

Hi

If you aren't struggling to meet the £288/month payments and this is the only debt you have (bar the £900 you mention) I would (personally) stick the money in a high interest savings account.

You mention that the settlement figure will grow - but surely it will decrease over time as you are paying it off (sorry if i have got the wrong end of the stick - not very good with car finance).

Anyway - hope this helps.

bargainbetty

Work out exactly how much you would spend if you keep making the repayments. Work out exactly how much you would save in interest by paying it off.

Work out if you can find a bank account that guarantees you the rate of return necessary to make up the difference in interest.

Personally, I'd pay off the car and then stick the £288 per month into savings.

Tixy

I'd definitely pay off the car.
There is no chance that you will be able to find a savings account that will pay you as much interest as the 11.1% it is costing you to keep the loan going.

The car will still depreciate whether you have the loan on it or not so I wouldn't bring that into consideration at all when making your decision, unless you think you might consider voluntary termination of the car altogether (assuming your agreement allows you to).

Takeaway_Addict

Depends whether you are disciplined enough not to waste the £288 you were spending and to put it back into a high interest savings account

redpete

superpennycounter wrote: »

If you aren't struggling to meet the £288/month payments and this is the only debt you have (bar the £900 you mention) I would (personally) stick the money in a high interest savings account.

Why? The loan is costing 11% (maybe £100 in interest a month), a savings account might earn you 3.5% (maybe £35 a month). So the net saving by paying the loan off would be at least £65 a month. The OP has not said they would be needing the capital for anything else so why not save £65 a month?

The continuing depreciation in the value of the car can be ignored, it will lose value by the same rate whether or not the loan is paid off.

joedenise

No question is a silly question if you don't know the answer.

But I think you answered your own question anyway.

You'll never earn the same interest on savings as you are paying on the loan so it makes sense to pay off the car and save the monthly payments you are currently making.

Denise

ryanryan

Thanks all.. I think that Redpete hit the nail on the head.. Interest on the car vs interest in the bank says it all.

I will be strict with the £288 and save that each month... Thanks again!

asparagus1968

well done, see,there is no such thing as a silly question!

Takeaway_Addict

ryanryan wrote: »

Thanks all.. I think that Redpete hit the nail on the head.. Interest on the car vs interest in the bank says it all.

I will be strict with the £288 and save that each month... Thanks again!

Set up a standing order for a few days after payday into a bank account you can't easily access...out of sight out of mind and all that