Advice on Purchasing Car

Dane-ger

Hello, i am new to this forum and have read the great advice and hope you can share with me your wisdom.

I am currently looking to purchase a new car as a treat for myself for my hard work over the last year yet, i am unsure how to buy it or, even if i should (I almost feel guilty thinking of treating myself). Here are my circumstances:

Monthly Wage (after tax): £2,800
Monthly Bonus (after tax): £5,000 - received for last 3 months running but not guaranteed.

Outgoings-
Rent - £775
Utilities - £160
Phone/Internet - £30
Groceries - £250
Car Insurance - £35
Mobile Phone - £15

I have used my previous bonuses to pay off the car i had purchased 2 years ago using a personal loan so now, outside of my car insurance, i am debt free (we rent, no mortgage).

We have a 7 month old baby so i have also saved on the side and have accrued around £15,000 in savings for a rainy day.

With the current housing market, we are in no rush to buy but if we do, we have £25,000 saved away for a 15% mortgage (3 bed house).

Now, here is my question. I really want a new car and have seen the one i like for £25,000. I dont however want to use my savings as i like having the safety of knowing its there incase of difficulty.

Here is my plan:-

Sell my current car = £5,000
Use £5,000 of savings
Get a personal loan for £15,000 @ around £290 a month over 5 years.

If and when i get more monthly bonuses, i would put these towards paying off the personal loan.

Although my bonuses and pay have been consistent, i have worries of getting the car then something unforseen happening (Job loss etc) and not being able to provide. I do beleive however the car will always be worth more then the personal loan i have left to repay on it so worst case scenario is sell it and use the other halfs car.

Can you please give me your opinion. I know some may say "wait and see if you can afford it without the loan in a few months" but as i said, i want to keep savings so a happy medium seems to be pay for half of it with funds/current car and fund the other half with the personal loan giving me security of my savings.

Sorry for the long story.

Thank you

BD

tell_it_how_it_is

Some will say that, yes.

Compounding the depreciation on the car by throwing away a few thousand in loan interest is silly, IMHO.

If you were to get £5k a month for the next couple, you've got £15k (with car sale), so only £10k savings depleted.

And you won't be losing much with savings interest as it is.

If you don't need an interest-paying loan (generally) don't get one, surely?

Foxy-Stoat_3

If you have over £6.5K disposable income a month it wouldn't take very long to save and buy the car outright.

Unless you can get a better deal on the car by taking out finance I wouldn't take a loan out, unless its for credit building purposes.

Niv

Why get a loan when you have so much savings / disposable income? Madness imo.

Ron0

You don't have to take loan as you have your savings....

dealer_wins

Would it really hurt to wait 2 or 3 more months.

And when you spend a massive £25000 of your own money, rather than a loan's "free money" it will really make you think...

"do I REALLY need a £25000 car"

If the answer is still yes then go ahead, knowing that you worked hard and saved up for your treat!!

Dane-ger

Thank you guys.

The income is mainly bonus as i say. If i don't get a bonus, its £2,800 so it would take me quite a while to afford the car after bills and unforseen.

I have a pre-approved loan from my bank of which it is a very low APR.

Your thoughts have made me think though. Taking a loan would stress me slightly as i hate the thought of owing money, even if the equity of the car will always be more than the loan amount.

27col

Not quite sure how you come to the conclusion that the equity on a car will always be larger than the loan. The one thing that you can be sure of with a car is that the equity(not a word I'd use) will drop like a stone as soon as you start driving it.

Dane-ger

Well, the car is £25k and is 1 year old, new its £38k. I mnaged to get the price down considerably with the dealer.

I have looked at the same car but 2 years older and it is around £18k for this spec model.

the loan would only be for £15k from the off so the car is always worth more then the loan, at least for the first few years? That's what i mean.

Regards to someone saying use my savings, as i mentioned, id prefer not to incase of any unexpected expenses.

thank you

Eonel

In your situation I would "borrow" the money from your savings account - and make sure you repay it from excess income as quickly as possible.

Think of the car as the asset that offsets your loan from savings. If the worst happens, you can sell the car and recoup the savings. The only money you are truely "spending" is the depreciation of the car.

More flexible and cheaper than a bank loan. + you will own the car making it easy to sell without worrying about the finance.

27col

Eonel wrote: »

In your situation I would "borrow" the money from your savings account - and make sure you repay it from excess income as quickly as possible.

Think of the car as the asset that offsets your loan from savings. If the worst happens, you can sell the car and recoup the savings. The only money you are truely "spending" is the depreciation of the car.

More flexible and cheaper than a bank loan. + you will own the car making it easy to sell without worrying about the finance.

This is a sensible solution to car buying. One that I have done several times in the past.