Pay for a car cash or take a loan out?

JohnDobson

Im wanting to buy a new car and although i have the money to pay for it cash (£7000) but this would mean nearly all my savings spent. Would it be better to take a loan out and keep my savings whilst still building up my savings or spend my savings and put what id spend on a loan back into savings?

finallydebtfree!!

personally if I was you I would pay cash, if you take a loan out for it that £7000 car soon becomes alot more expensive!!!

JohnDobson

With a loan i would pay £7700 over 36 months. I dont know if id rather do that and pay £215 a month or wipe out my isa's and start saving again.

finallydebtfree!!

Its a tough one, but as a car loan is what started my debt followed by a credit card and then a loan for something else once the car was paid for Im a bit biased, so I personally would recommend it.

If you are strict with yourself and put that £215 per month into an isa you will have that money back plus interest in 3 years

I can see your point as well though as Id be reluctant to use all my savings, but since finding this site Ive learned to to spend more than I have to on anything!

JohnDobson

I know i wouldnt get behind with payments as i always mange to put £350 into my savings accounts as it is sometimes more its just the whether i want £7000 in the bank and not really own the car or spend my savings and own the car. I cant decide!

finallydebtfree!!

If you put £350 away each month you would have your money back within 20 months (or earlier if you say you sometimes put more away) do you have a car at the moment? if so you will have the money from the sale of that too unless you part exchange it

JohnDobson

Yeah i have a car and would put what i got for mine towards then new one (£1500ish). If i got a loan i would do it so i could pay back early with no penalties so if i didnt like it i could pay it off or if i come into some money i could pay it off. Only thing thats stopping me from paying cash now is 3 years down the line when i want an upgrade again my savings would be wiped out again at least taking out a loan id always have my savings to fall back on.

finallydebtfree!!

I can definately see where you are coming from, Im sat here with my calculator working out variuos scenerios!

simple one is get the loan pay back £215 per month over the next 3 years, (paying £20 per month in interest charges for the priviledge) and still have your nest egg of £7000 (are you likely to need that much over the next 3 years)

or: use the cash, now your savings are at 0, sell your current car then you will have around £1500, you say you already put away £350 per month, so carry on doing so you will have the £7000 back in around 15 months (this doesnt take into account the interest)

another option is to use say half of your savings and then take a loan for the rest, if you can do this. When I took out my first loan which was for the car I had £4000 in savings which I used and paid the other £3000 with a loan!

finallydebtfree!!

Neither of the options below take into account the interest on your savings account but will give you a rough idea!

or: use the cash, now your savings are at 0, sell your current car then you will have around £1500, you say you already put away £350 per month, so carry on doing so you will have the £7000 back in around 15 months (this doesnt take into account the interest)

with this sceneario, provided you didnt touch the savings for 3 years, in 3 years you will have £14100 (hope Ive worked that out right)

£1500 from sale of car + £350 x 36 months = £14100

simple one is get the loan pay back £215 per month over the next 3 years, (paying £20 per month in interest charges for the priviledge) and still have your nest egg of £7000 (are you likely to need that much over the next 3 years)

based on the same terms as the other sceneario, with this one you would have £11860 in savings at the end of 3 years

monthly loan repayment £215

£7000 still in savings account, new monthly savings amount £135 (£350-£215)
£135 x 36 = £4860 + £7000 = £11860

JohnDobson

interesting seeing your sums finallydebtfree but i wouldnt put the money from my car into a savings account id still use it as part exchange for a new one so really saving up again id have £12600 so pretty much the interest id pay on the loan and a bit from interest on my savings would be the difference. The question is do i want to go back to £0 and risk not having anything for say i have a bump or i if want to go on holiday or something or pay an extra £20 a month for keeping my savings?

The loan is through northern rock at 6.2% i think.

Garnet_Gem

I'd pay cash and then make a determined effort to save as much as I could till I got into the "comfort zone" again. A car loan is debt no matter how it's dressed up.