Loan or use savings?

babelfish

We're buying a car for around £10,000. We were going to get a loan for £7500 and put the rest to it out of savings. Should we use £10,000 of our savings and no loan though and pay ourselves back by the same amount per month? Save on loan interest even though we will lose some interest on savings.

Caz3121

compare the interest rates
If your savings earn you 3% and a loan will cost you 4% it is cheaper to use savings as you would be losing less interest than you would pay

babelfish

Are there an savings accounts that earn that much? The cheapest loans that we may qualify for are 3.3%. Trouble is, you don't know if you will get that rate until you apply which affects your credit score.

CLAPTON

babelfish wrote: »

Are there an savings accounts that earn that much? The cheapest loans that we may qualify for are 3.3%. Trouble is, you don't know if you will get that rate until you apply which affects your credit score.

what are your current saving earning net of tax?

if a loan costs less (i.e. interest rate) then take the loan, if the loan cost more then use saving
it's really that simple

vlad

Maybe shop around for 0% deal on the car, other than that use your savings and repay them from what the loan would have cost.

YorkshireBoy

babelfish wrote: »

Are there an savings accounts that earn that much?

That £10K could/should be making you 5% AER...4% after BR tax, but probably a straight 5% after April.

redpete

babelfish wrote: »

Trouble is, you don't know if you will get that rate until you apply which affects your credit score.

You can always decline the loan when you are told the actual interest rate you will pay. The effect of a single application on your credit rating would be tiny - if you are so close to the edge that it might affect your chances of getting a mortgage (are you looking for one soon?) you probably have more to worry about.

downhillfast

If your circumstances allow it, I would hold off on the loan idea entirely for now and look at a 'money transfer' credit card - there are 37 months 0% interest (initial fee may apply) cards available at the moment and that is by far cheaper thank a loan over the same period. You may not get the full £10k though - we bought our last car this way got a £8k limit with Virgin's card.

Khrisjun

Id second downhillfast's comment, took 8 days for me to apply and get >5k with an MBNA money transfer card - Its not the full 10k but you can then use some of your savings to fill the gap.

You do have a fee on the money transfer cars, but if the fee is 1.6% and you keep the money outstanding for 2 years the effective rate (Im ignoring the effect of minimum payments which you must make) is less than 1% for the borrowing which is the cheapest money you can get. I just put the 5k into higher interest savings accounts, but i guess buying a car is another option