Dilemma – overpay loan VS save?

New_Bride

Hope this is the right board!!

We took a loan recently to buy a new car.

Dilemma:
In a few years’ time (not sure when, if ever… but probably within the next 5-7 years) we’ll probably replace at least one of our existing cars with a newer model. We need two cars as we live outside of town and my husband needs a fairly good car as he travels a lot for work. I just need a run-around to get me to and from work (public transport out here is shocking, otherwise I’d happily get myself a bus pass).

Knowing we’ll need a few thousand pounds for this at least, do we save up for the new potential car(s), or overpay the loan (thus saving in interest and clearing debt quicker) but with the knowledge that we’ll have to take out another loan in a few years’ time to pay for said new cars?

Or is the answer to go “half-and-half”?

What would you do?

The existing loan is over 5 years. We can well afford the monthly repayments; we’re both in well paid jobs and we don’t have a crystal ball but expect to remain in fairly well paid jobs for the foreseeable.

We already have a “rainy day” fund for car repairs and other emergencies, so that’s not a major issue at the minute. Question is just with the “New car” fund.

Thanks

dealer_wins

If it were me I would save up. At least after your current loan finishes you wont need to start all over again with a further loan!

gazman100

Assuming the loan is higher interest that you earn on any savings I would pay that back first. Then, as you have paid the loan off early, use what would have been the loan repayments, including over payments, to save.

enjoyyourshoes

Just check if there are any early payment penalties on loan.

If not do as Gazman suggested

You can do Excel spread sheet with the options to clearly ascertain the most economic route and what you would have to save to get new car.

I would suggest to have a clear discussion on why you would need to replace a car with a newer one, just to check that you are doing the right thing.

stator

You also need to make sure you have some savings to live off if one of you lost their job or became ill.

New_Bride

Thanks for all the replies. My husband was all for doing absolutely nothing so I needed someone else’s sensible opinions!

As far as I’m aware there are no early repayment charges but I’ll double-check. It’s a Nationwide loan at 4.2%, so a fairly low interest rate (but not as low as the savings account’s rate.)

OK so for now OPing seems to be the winner here. At least, OPing until the loan is cleared, and then use that money towards savings.

We don’t know for sure if we’ll be replacing any cars, but I’d rather have some sort of plan if that time does come. My husband will probably need to get a newer car for his job as he clocks up a lot of miles (assuming his duties don’t change, which they may well do. A lot can change in a year, never mind several!)

Cheers!

forgotmyname

But if they lost their job how will they have the money to pay the rest of the loan?

Paying the loan may save them interest. (may)

Nebulous2

I would be very wary of a five year loan for a car. Having a loan for no more than the period of time you expect to own it is the best idea if you need to finance it. Then if it is paid off you can use the value in the car as a deposit, instead of having to pay off the loan first.

ReadingTim

Have a look here - your query is a pretty common one.

poipo

why not just get 4-5years old car which probably will be still as new and save 2.5-3x of it's original price? heck some of the crap makes such as vauxhall/ford/french crap becomes like 4X cheaper by that time...