Loan v Overdraft

Mr_Falling_Star

Help us out please!

A relative has very kindly offered to sell us their car for £1500 on condition we take it off their hands asap (don't worry I trust them)

We have a car which we can sell for a similar value but this will take time

Would you advise that I take a loan out to pay for the car and pay it off as soon as I have sold my old car (and incur a early repayment charge)

or

Just go overdrawn at the bank until I can sell it. I will not be able to get into a credit balance if I do this as I get £1400 per month wages. I have a agreed overdraft limit of £4000. I have no other debts and by credit history is good

Any ideas?

Thanks

drussmonkey

More info needed - what is your overdraft rate? Is it a percentage or a fixed charge that tops out at £20-30 a month (depending on bank).

On such a low amount, the standing overdraft charge works out to a very high APR that is not good value for money. If you were taking out the full £4000 for £20 of overdraft fees, that would be much cheaper comparative borrowing.

Having said that, a loan would probably lock you in to a minimum term (12 months?) which minimum interest levied over that time which would mean you end up paying more overall.

That becomes a question of how quickly you think you can sell your car. If the answer is quickly, short term use of your overdraft should be cheaper. If longer term, a loan would probably be cheaper.

The better solution is to ask if you could get a nice 0% credit card with a6-9 months term, and shift £1400 of spending for the next month on to that to compensate so that you didn't have to use your overdraft.

That would be win-win, but a credit card application could take a month and you may not have the time to wait if a quick sale is needed.

Is the car being sold to you at £1500 some amazing discount? As otherwise I'm not sure why you'd sell a £1500 car to buy a £1500 car