How much would it cost?

cazziej

Hello

Just after a bit of advice please.

My 21 year old son is looking to buy a car in the next few months. He is thinking of paying up to £3,500, if he can get a loan. His father has just unexpectedly received a sum of money and we have said that we will give him £1000 towards the car. This means that he will still have to get a loan for £2,500. He travels quite a distance daily and whichever car he gets will have to last him a good few years.

This is my question: if he were able to get a car loan for £2,500 over a period of around 2 years, how much would the monthly repayments be?

His take-home pay is around £1000 per month, and he currently pays for car insurance, sky tv, mobile phone, board, etc. He has an overdraft. He applied for 2 loans quite close together but got knocked back, even though his credit rating comes out as "good". Over the past few months he has reduced his overdraft.

The main point of this ramble is to say, his father and I have struggled with debt throughout our marriage and I don't want him to go the same way.

We would now probably be in a position to loan him the £2,500, but wonder how much per month he would need to pay back (we would want it to be either the same or less than he would with a loan from elsewhere, but don't want to charge him interest)

Any advice?

Thanks, Carol

edsteruk

Hi there,

For a loan of that size (£2500) form a bank/loan company the interest rate would probably be fairly high (14.9-19.9% APR).

So based on 16.9% APR he would end up paying £146.18 a month for 2 years (24 months) bringing the total to £3508.32 (so £1008.52 interest!!).

So if you did loan him the money interest free I would ask him to pay back at £105 a month (£105 x 24 Months = £2520).

So obviously if you can lend him the money interest free (or even at a rate that you would of got from the bank) you would save him a fair amount of money.

Hope this helps!

RAS

cazzie

I think the general suggestion here would be that DS sould save up for the next few months to but his car rather than relying on loans and parental contributions.

His take-home pay is around £1000 per month, and he currently pays for car insurance, sky tv, mobile phone, board, etc.

The whole idea is that now he is adult, you need to help him learn to live independently not scounge off you. What would it cost him to live in a shared house rather then at home?

If you are feeling really generous, you could work that out, get him to put the difference into the OD initially and then save the amount each month into an ISA. If he does that, then you will loan him an amount equal to his savings as long as he stay out of debt.

cazziej

RAS, thanks for the suggestion.

Edsteruk, thanks for those figures, that is exactly what I was after. So, if I ask him to pay around £110 for 2 years, we will all be happy!

Thanks and best wishes

Carol x

CLAPTON

A lot of people earning 1000 a month pay rent of 4-500 ... I'ld be interested in how much he pays for his board.
He should draw up a proper budget to show exactly where all the money is going.
Frankly, living at home with an income of 1,000 he should be a net saver and not borrowing money. Whatever will be do if he wants to move out etc?
Help him to learn to budget. In the long run it will help him a lot more than 1000 gift.

edsteruk

CLAPTON wrote: »

A lot of people earning 1000 a month pay rent of 4-500 ... I'ld be interested in how much he pays for his board.
He should draw up a proper budget to show exactly where all the money is going.
Frankly, living at home with an income of 1,000 he should be a net saver and not borrowing money. Whatever will be do if he wants to move out etc?
Help him to learn to budget. In the long run it will help him a lot more than 1000 gift.

I would have to disagree and also agree with you here - I have been in that position before - after paying for driving lessons, insurance, petrol for work and then keep to parents it soon all goes! But on the other hand had I been made to save perhaps I wouldn't of ended up in as much debt now!

raq

I personally wouldn't want one of mychildren to borrow money at such an early age.

I also agree with edserturk and CLAPTON. There is such much going on at the moment with trying our best NOT to drag our children into DEBT. That's what it is at the end of the day

Jonesya

cazziej wrote: »

RAS, thanks for the suggestion.

Edsteruk, thanks for those figures, that is exactly what I was after. So, if I ask him to pay around £110 for 2 years, we will all be happy!

Thanks and best wishes

Carol x

If he's living at home and has relatively limited outgoings why not ask him to pay it off more quickly, say £300/400 a month. If he's got the disposable income its better to pay off his debts quickly - if it's not going on the debt it'll either be spent or saved, and is there much point in saving up whilst still owing money to his parents?