Best option??

benmc1990_2

Hi

i was wondering if i could get peoples views on here of what they think would be the best option for me, heres a little back ground infomation..

22 years old, have got around £10,000 saved towards a house deposit currently saving £400 a month, i rent a room in a house for £400 due to rent for a single place in aberdeen being rediculous, i currently pay £200 a month for my car and have 2 years roughly left (a little less unsure on months)

i was thinking to free up the £200 make living a little easier and be able to save slightly more towards a property what would my best option be, stick how i am currently going along or would it make more sense to cut my house savings to £200 a month and pay an extra £200 off on my car amonth to fully pay it off quicker, then revert savings back to £400-£500 a month towards a property, once the car is paid off?

My savings account is currently with nationwide save to buy and so are all my other accounts including my car loan so i have decent rates all round being premium customer..

could anyone advise what the best option would be?

thanks!

JimmyTheWig

The question is what happens, in terms of interest, if you pay extra on the loan / you pay off the loan in full?
And when are you looking to buy a house?

If there are no penalties on paying off the loan early, you'd save a load of interest by doing this. Whatever rate you are paying you can be pretty sure that it is a higher rate than you can earn on your savings.
So use some of your savings to pay off the loan and then put £600 a month (i.e. the £400 you have been paying plus the £200 car money you will no longer be using) into savings. When the time the car loan would have been finished your savings will be beyond (by the amount of interest saved) where they would have been if you hadn't dipped into them.

Unless...
1. If you are planning on moving within the next two years then it is worth checking with a broker what effect the lower deposit but debt-free situation would have on a mortgage.
2. If in six months time you think "I've had this car for a while, I've paid off the loan on it, it's about time I traded it in for a new one - I can get another loan" when you wouldn't have done that if you still had the loan on the car. You need to see my suggestion as loaning yourself the money for the car.

typistretired

If the interest rate of your car loan is higher than the interest you receive for your savings it makes sense to pay off your car loan quicker.

benmc1990_2

i cant withdraw savings without a 60 day penalty on interest and id rather not dib into them, i would get charged on paying off like 60 days interest but i would save the extra 200 for a good few months (work out) and pay off in ful when i can so i dont get a big interest charge if you get me... looks like reduce house savings for now and do that .. and im kinda wanting to move in a year to two years see how prices and rates change etc, id rather have a big deposit as possible due to being on my own, thanks people

JimmyTheWig

benmc1990 wrote: »

i cant withdraw savings without a 60 day penalty on interest

Impossible to say for definite, but if you would save interest on the loan by paying it off early then this will almost definitely be worth more than 60 days' lost interest on your savings.
Find out from the loan company exactly how many more monthly payments you have, and how much it would cost to pay off right now. Come back to us with the figures if you are still not sure what to do.

DragonQ

Agreed with the above, aside from having a little "rainy day" money, there's no point having money in a savings account right now if you have other debts, including a mortgage, that can be paid off. Find out if there's any penalties for paying off your car in full.