Should I take car finance or pay cash

Joe7B

Hi All

Just a thing running through my head at the moment. I am looking at buying a new car, and I have a budget of 35K.

Now I have the cash but I am in a quandary as to should I pay cash or take out finance.

I can get finance at around 2.4% and the cash I have makes around 8-9% with the investments I have in the markets etc. Obviously its not a guaranteed return since its investments and as they say, past performance isn't an indicator or future performance.

I don't have any other loans or cc debts, only a mortgage.

What are your thoughts?

jonesMUFCforever

Have you thought of capital gains tax implications if you have to cash in a lot of investments to buy the car?

Joe7B

Im a Brit living overseas and as such I don't have to pay any CGT. I am not used to having debts, I have always shied away from them but I was doing the sums and it seems to make sense to keep my investments and use the banks money at a lower rate.

ch3101

I'd say that this is the exact right reason to USE credit. As long as you're sure you are in the financial position to spend 35k on a car and have considered everything then you would indeed be better taking the finance.

uknick

On the face of it, or at least from what you've said, this seems a no brainer. Borrow at 2.4% or lose interest at 8% on investments; borrow.

CherlokHomes

Either way you'll be losing thousands in depreciation so not really a good idea to spend 35k on a car that will be worth 10k in around 4 or 5 years.

Joe7B

I know…but thats another subject…. but thanks anyway

jonesMUFCforever

Are you buying the car in UK - if you are residing abroad for tax purposes how many days a year will you be able to enjoy the car?

bigadaj

You say you're getting a return of 8-9% so presumably this is equity type investment and as such isn't guaranteed in any way. Developed world long term equity returns are assumed to be 5% in real returns which might equate to your numbers.

Alternatively it could be savings interest in another jurisdiction, which may be subject to exchange rate risk, though whether that concerns you depends on your situation, long term outlook etc.

If you can earn more than you borrow then that's a good arbitrage situation to be in. As stated earlier the problem is the money is being used for a depreciating asset. The other thing is tax on either side which can make things look better or worse depending on whether you pay this on investments or maybe get relief.

Joe7B

Yes my investments are equity based, and as you say not giving a guaranteed return. I just base my percentage on historic past performance that I have achieved. I don't pay any tax on returns due to my situation.

I agree that it is a depreciating asset, but whatever car I buy is will depreciate. Obviously the more expensive car I buy the more the depreciation in real terms. However you do have to spend something and the budget is well within my means. I just want to make the most out of the money I spend. Incidentally to try and offset some of the depreciation I am looking at 1-2 year old cars where they have already taken a big hit so I benefit from that side of things a little at least.

I don't generally use finance for things. I have a cc but pay it off every month, to the penny. I have a mortgage, but other than that no debts, I am in a fortunate position, but equally I have worked hard and always saved and not used credit.