Best use of 16.5k lump sum

jem16

gkerr4 wrote: »

if he / she loses their job (a common worry for us all at the moment surely) they they can live for 8 months worry free with the 16k in the bank - whereas either other option would result in default on both loans within a very short time period - like i say, if you come into 16k and you have nothing else (we don't know this part right enough) then once its gone, its gone.

I agree that it is important to have an emergency fund but it seems the OP already has that.

m0ns00n wrote: »

With regards to my emergency fund, I have more than 6 months in a stocks & shares ISA (this is just general rainy day savings). If the worst happens, I could dip into this if need be.

Perhaps not as accessible as I personally would like as the OP might have to sell at a loss if timing is wrong but if he's happy with that, that's OK.

After that surely it's best to clear off a loan with a higher APR than save at a lower APR?

jem16

m0ns00n wrote: »

With regards to enjoying the cash, I think I'd feel better paying off my car loan as that was me enjoying cash I never had in the first place!

Sounds sensible.

I currently save £250 / month into a stocks & shares ISA. I could divert some/all of this into mortgage overpayments to make up the necessary 20 - 25%. Or I could keep paying into this into the ISA in the hope the return is greater than 5%, then withdraw when I need it.

Crystal ball area there I'm afraid. If you are looking to buy your house in the next 1/2 years, that ups the risk level of the investment. However the return doesn't have to be 4.99% as your 4.99% offset savings rate will work out as 2.68% APR. However you could just as easily lose 20% in S&S.

cos_2

jem16 wrote: »

. . . emergency fund . . .



Perhaps not as accessible as I personally would like as the OP might have to sell at a loss if timing is wrong but if he's happy with that, that's OK.

I know what you mean, but I think that the OP has his emergency fund in the right place. It's for unforeseen/unplanned circumstances, therefore, it needs to be accessible within a reasonable amount of time but also racking up as much growth/income/both as possible.

Sticking it into a 3.1% savings account with immediate access would be silly. Unless, of course, it's not a REAL emergency fund.

For me the immediate access to funding in an emergency would be credit cards and OD, refunded within days by cashing in stocks.

atush

With regards to my emergency fund, I have more than 6 months in a stocks & shares ISA (this is just general rainy day savings). If the worst happens, I could dip into this if need be.

i agree with Jem, that having 100% of your emergency fund in a S&S isa isn't ideal as an emergency could come round just after a market correction. This is why emergency funds are normally held in cash/easy access.

but, if your linked offset savings is easy access, you could use this initially and refund it when investments have recovered?

m0ns00n

I see there's a lot of talk about the emergency fund!

I do have around 3 months worth in my offset savings account, so that can be used before needing to raid the S&S ISA.

Also, given I do have an offset mortgage, I can always withdraw back up to the original loan amount, and reduce my payments to interest only.

I'd think I'm therefore covered with regards my emergency fund, so I have no qualms in the 15k being 'gone' by paying off the car loan (I could then always sell the car as a last resort).


Thanks for all the advice everyone! I'm pretty much decided that I'll pay off the car now.

My settlement figure for the car is valid until the 13th July, so I'll probably leave the cash in the offset savings account until then (may as well get 1 months interest from it).

atush

There is always talk about emergency funds as 1- many don't have them

2- people forget what they are for ;-)

Good luck. And don't buy a new car. Buy late model used/demos etc.

browniej

m0ns00n wrote: »

Thanks for all the advice everyone! I'm pretty much decided that I'll pay off the car now.

You seem to have decided but just to throw an idea into the mix.

Short term, paying off the loan seems the most sensible idea.

Long tern - you are going to have a mortgage for longer than a car loan. If you get a better rate ( and thus save a lof of interest over the term) by having a larger deposit, this would see your mortgage payments significantly reduced by having to borrow less and would be better than the short term gain of paying off the car loan.

I would keep the £16.5k in the offset savings and use it for the bigger deposit.

m0ns00n

browniej wrote: »

You seem to have decided but just to throw an idea into the mix.

Short term, paying off the loan seems the most sensible idea.

Long tern - you are going to have a mortgage for longer than a car loan. If you get a better rate ( and thus save a lof of interest over the term) by having a larger deposit, this would see your mortgage payments significantly reduced by having to borrow less and would be better than the short term gain of paying off the car loan.

I would keep the £16.5k in the offset savings and use it for the bigger deposit.

I've considered that as well.

Problem is, if I don't pay off the car loan, then I'll have to take another loan on my next car. It's a vicious cycle as any money I did save for a new car would be eaten by the interest payments.

If I pay off the car, and save the payments, I'd end up with £8.7k by the time the loan would have finished.

I think, looking at the long term, it'd be more beneficial to pay off the car loan (and never take another one), thus avoiding the higher rate of interest on car finance.

I've done some calculations and I believe I can pay off the car loan, and still have a 20% deposit available.

It's a tough decision though, as both avenues have their advantages and disadvantages!

m0ns00n

atush wrote: »

Good luck. And don't buy a new car. Buy late model used/demos etc.

Yeah, good advice! I got a £2k reduction on this car as a new model was due out a month later (which is virtually identical, save for reshaped headlights). Was still a brand new car which was nice

browniej

m0ns00n wrote: »

If I pay off the car, and save the payments, I'd end up with £8.7k by the time the loan would have finished.

I think, looking at the long term, it'd be more beneficial to pay off the car loan (and never take another one), thus avoiding the higher rate of interest on car finance.

How will you pay for the next car then? I thought you were planning on using the money saved by paying off the car loan towards the 20% deposit?