Use ISA Money or Mortgage Money?

MCCOL

I intend to buy a new car. I have money available in either my ISA or my mortgage overpayment fund. Which should I use?

As a followup question; in terms of actually making the payment, I don't want to draw out cash and carry it round with me so what is the best way for me to actually pay the garage? Transfer the money into my current account and then use Visa Delta? I'm guessing a cheque won't be acceptable because my cheque card is only good for about £200. Any suggestions?

Cheers

Steve_xx

Try not to use your ISA cash since it cannot be replaced and you lose forever its tax-free status.

Use your debit card or get the bank to give you a bank cheque for the car (bankers draft). Paying by debit card means you get to take the car there and then, whereas with the bankers draft you may have to wait until it has cleared. You could write a cheque yourself, but like with the bankers draft, you would have to wait until it had cleared before you got your car.

Aegis

Get a cashback credit card, raise the credit limit as high as possible, move the funds into the current account that you (of course) automatically pay off the debt in full for, then buy the car with 1% cashback or more

I'm not sure that this would work, best to research further first.

Steve_xx

Oddly, car retailers do not like you to pay using a credit card, probably because it costs them. They may let you pay with your credit card, but they will load the price of the car to take account of it. So be sure to negotiate the price of the car before divulging that you plan to use your credit card to pay for it.

Paying with a credit card is a good idea since you are afforded protection under the Consumer Credit Act, ie if the car fails and you get no joy from the retailer, then you simply contact the credit card company and tell them that they have a problem that you want them to resolve.

Also, there is a credit card available from Capital One that will give you 4% cashback during the first 3 months worth of purchases.

Browntrout_2

If you can overpay your mortgage without penalty then I'd use the cash ISA.

Yes you lose the tax free status of that element of your savings, but you are then driving around in a depreciating asset and paying interesty on a loan for it. Effectively securing the car against your house which is cheaper than a car loan, but why borrow money if you have savings?

This is a common misconception, and I will probably get shot down in flames, but I see cash ISAs as a way to save cash for the short to medium term (up to 5 years). It has to be spent sometime!

debbie42

I agree with Browntrout that the cash ISA isn't some untouchable fund that shouldn't be used. There may be tax benefits to it, but you need to calculate the maths behind the various different options to see what's best.

Unless you were planning on getting some more money from somewhere else in the short term, and so could replenish your lump sum, then I can't see a reason not to use it just because it's an ISA, if the value is there.

CLAPTON

if the interest rate earned on the ISA is higher than the interest rate paid on the mortgage, then use the mortgage fund otherwise use the ISA.