Sruggling to make a decision on future savings vs new car

danlightbulb

Fair point on having a car thats broken which you are paying for and stuck with or having to make a loss on.

But the loan itself. The best rate on 10k is 3.5% which works out to £12 interest per month. Its hardly anything. One indian takeaway would wipe that out. To save the same amount paying the repayment anount would take almost 5 years.

Herzlos

Credit is very cheap right now, I agree. The risk is how long you commit to paying it off; lots of people (including me) get into trouble that way. Circumstances change, rates go up, repairs are needed and so on.

So whilst you *could* borrow £10k for a car over say 5 years, are you confident enough to keep that payment up for 5 years that you *should* do it?

Bear in mind that until it's paid off fully, the odds are you owe more than the car is worth, so you can't just sell it, clear up and move on.

I'd certainly be sure to leave enough slack to pay for repairs / maintenance, as no car is hassle free forever.

danlightbulb

There is a risk of being in basically negative equity if you have to shift the car on i agree.

Take the loan. £150 a month + £12 interest over 5 years but you get it now. In 5 years you repeat again to replace your car so its an ongoing £150 +£12 interest.

Or save up for 5 years to buy outright, which wipes out your savings. Then you have to save up again for 5 years when youll replace again.

The only difference between the two approaches is the £12 a month interest.

If the cars breaks in either scenario youll have to take a loss on it or pay for repairs. No difference.



Now taking sainsburys loans as the example here.

On a 5k loan Id pay £580 interest over 5 years at 4.5% apr. But on a 7.5k loan I'd pay £675 interest at 3.5%. Only £95 difference in interest repaid for £2.5k difference in loan which is £1.58 per month. I'd be better off taking the higher loan amount even if I was still only spending £5k of it on a car, because I'd have an instant £2.5k emergency fund for an insignificant additional interest cost.

AndyT678

danlightbulb wrote: »

If your water company said 'we need a new treatment works because the current one is deteriorated and performing poorly, but we wont fund it with debt instead we'll save up for 20 years to get the 50 million pounds.' Then clearly this is rubbish.

What your water company will do in that scenario is calculate the net present value of the investment i.e. capital outlay vs discounted cash flows from the future profit generated by the plant. If it's >0 over a sensible time horizon then it stands a chance of getting built. It's also completely irrelevant to buying a second hand car.

danlightbulb wrote: »

The best rate on 10k is 3.5% which works out to £12 interest per month.

No it doesn't 10,000 * 3.5% / 12 = £29. The figure you're getting to is the average monthly interest over the life of the loan. The interest element will be much higher at the start.

The bottom line is cars cost money. They depreciate, they cost money to drive and they cost money to maintain. There is almost no scenario where it's is a sound "commercial" decision to borrow money to buy one. But people do because they want shiny new things. Don't think it's only £700 of interest; think it's £10,000 that could be in my bank account in a few years...

Puddylove

In July you were asking for help to get control of your finances, with a paper surplus of only £283 according to your SOA.

And now you're talking about borrowing more than you need, bringing your debt to £17.5k, about half your salary.

If I were you, I'd be concerned that the novelty of driving a new car would wear off many, many years before you managed to repay the debt.

Maybe you should do a longer term budget or plan, looking at where you will be in 5yrs time in terms of credit cards, loans, houses, and maybe some money aside for your kids?

Or just borrow the money, buy a car and be done?

P x

danlightbulb

AndyT678 wrote: »

What your water company will do in that scenario is calculate the net present value of the investment i.e. capital outlay vs discounted cash flows from the future profit generated by the plant. If it's >0 over a sensible time horizon then it stands a chance of getting built. It's also completely irrelevant to buying a second hand car.

Its similar actually. My car is an asset that allows me to get to work, thus it has value in being part of the chain that generates a return i.e my salary.

AndyT678 wrote: »

No it doesn't 10,000 * 3.5% / 12 = £29. The figure you're getting to is the average monthly interest over the life of the loan. The interest element will be much higher at the start.

Sorry I meant £8k not £10k. The loan quote for £8k at 3.5% is a total interest over 60 months of £720 ie. £12 per month.

Puddylove wrote: »

In July you were asking for help to get control of your finances, with a paper surplus of only £283 according to your SOA.

I know, and thanks to the SOA and this forum I have reigned in my spending and started saving. I was haemorrhaging money and I have massively reigned this in and realised that in a good month I'd be able to save probably over £500. This month its been less because of christmas.

Puddylove wrote: »

And now you're talking about borrowing more than you need, bringing your debt to £17.5k, about half your salary.

Correct, but that debt is for a specific asset which I need to be able to run my everyday life. Re my previous examples, because the rate is so cheap it makes next to no difference between saving for 5 years or having a immediate cash injection for the purpose and paying it back over 5 years. Which is the point I'm making. The more pressing issue is whether or not I should buy a new car at all, not how I should finance it, as you have picked up on here:

Puddylove wrote: »

If I were you, I'd be concerned that the novelty of driving a new car would wear off many, many years before you managed to repay the debt.

Quite possibly. See why I can't make a decision lol?

Puddylove wrote: »

Maybe you should do a longer term budget or plan, looking at where you will be in 5yrs time in terms of credit cards, loans, houses, and maybe some money aside for your kids?

I have done this. I'm paying off my £10k CCs at £200 per month i.e 4 years. I'm no longer adding to this debt because I'm not haemorrhaging money any more, so I consider it isolated from the rest of my finances.

I'd like a house deposit in 5 years time. Would need £15k to buy a £150k house which is £250 per month to save. I'd be 40 then so could still have a 25 year mortgage taking me to 65 when I collect my pension, and provided the investments don't nose dive in the last few years of paying in I'd have a good lump sum out of it.

In a good month I should be able to save close to £500. In an average month maybe more like £400 realistically. At xmas time, less. I could save for a house faster if I don't buy a car yes, or pay off my CC debt faster.

Puddylove wrote: »

Or just borrow the money, buy a car and be done?

P x

I have too many options. If my car broke tomorrow Id have an easy decision, but I'm aware I can just keep my old car at the moment.

Part of the reason for my indecisiveness is that I feel that all the cars I look at are not good value for money. I don't want to pay £8k or whatever for a mundane car. I have a mundane car now. If I'm going to spend the money I have to feel its worth it i.e something special, fast, whatever.

BrassicWoman

do you "deserve" a nice car as much as your family "deserve" holidays, education financial stability, etc etc?

Rossim1985

Puddylove wrote: »

In July you were asking for help to get control of your finances, with a paper surplus of only £283 according to your SOA.

And now you're talking about borrowing more than you need, bringing your debt to £17.5k, about half your salary.

If I were you, I'd be concerned that the novelty of driving a new car would wear off many, many years before you managed to repay the debt.

Maybe you should do a longer term budget or plan, looking at where you will be in 5yrs time in terms of credit cards, loans, houses, and maybe some money aside for your kids?

Or just borrow the money, buy a car and be done?

P x

This x 10. You don't have the money for the sort of car you want. Stick with what you have and try to get a better job / more income then revisit it in a years time.

danlightbulb wrote: »

Yeah I can't decide. Is that a crime? Who else do I have to talk to about it other than anonymous people on the internet?

If you have been reading my threads then you'll have seen that there is no easy solution. But that doesn't mean I can't keep looking for one does it.

And it doesn't help to keep being given conflicting information. Half the people say avoid diesels, the other half say they are ok. People keep suggesting the ST220 even though I've said many times its mpg is too low and its still just an old shape Mondeo. And there is no way a car as old as mine is still worth £5k+. That's why Im unable to make a decision, because everything suggested doesn't seem like good value for money. My car is worth £500 at best!

And no of course it's not a crime, but if you were happy to ignore 19 pages of advice on another forum I don't see how this one is going to come up with a different answer. The truth is that you haven't had your lightbulb moment yet and you won't accept your (not the best) financial situation. You are desperately trying to justify shelling out a load of money on something you don't need and cant afford. I know I'm right because I used to be that same person and I used to spend it on cars too! With money saving expert the clue is in the name - money saving, so you will get even less support here than on Pistonheads for your madcap plan.

I absolutely love cars myself and like you I have recently been running a crappy old car. Said car sadly died a few weeks ago when the head gasket blew, but I got lucky and my mechanic gave me £250 for it, which was considerably better than the £60 the local scrappy was offering. I would LOVE to have a nice new set of wheels but having just bought a new flat and seeing as I am getting married in January, a new nice car is way down the list of priorities, so at the end of this month when I get paid I'll be purchasing some £500 banger with 12 months MOT. If your old banger still works stick with it and plug away at the house deposit and clearing the CC debt. You'll thank me some day I promise!

danlightbulb

I haven't ignored any advice at all. I've taken it all on board. What salary do you suggest I need to buy a used 4 year old car? £70k? £80k? £90k? Maybe if I just pop out next year and get a job for £100k I'll be able to upgrade to a Volvo?

How much are you wasting on your wedding? If I was you I wouldn't bother getting married. I was lucky and some other guy has my ex wife now. You'll thank me some day I promise!

I'm being flippant clearly. But genuinely I would like to know what you think an appropriate salary is to be able to purchase a car for £8k, given the uk average salary is about £26k.

Rossim1985

danlightbulb wrote: »

I haven't ignored any advice at all. I've taken it all on board. What salary do you suggest I need to buy a used 4 year old car? £70k? £80k? £90k? Maybe if I just pop out next year and get a job for £100k I'll be able to upgrade to a Volvo?

How much are you wasting on your wedding? If I was you I wouldn't bother getting married. I was lucky and some other guy has my ex wife now. You'll thank me some day I promise!

You are being facetious now. I was trying to help.

You can afford the car you want but it will prolong your debt and inability to get out of renting a place for many years. For most people on this forum a nice car will never take priority over a home of your own or being debt free when we can all get by with a cheap old car.

My wedding is costing me nothing as my wife's family are paying for it seeing as I have done the house and a good chunk of the visa we need on my own. Finally maybe if you was not so bitter you would be able to listen to the good advice people are giving you here! Deary me!

Edit - just saw your edit and new paragraph on your post. I hope it was flippant! Forget the £8k car and clear the debts first. You'll feel so good when you are debt free I promise.