Should I get a second loan?

littlelegs23

Hi, I'm new to this and hope someone can help. 
We currently have one car in the household but I need to purchase another for work reasons.
The current car was purchased with a personal loan of £7500 @2.8% which currently has 2 years left, so about £3000 (inc. interest).
I am looking to spend around £9000 on the new car and have £4000 in savings so will need some sort of new loan. 
So should I get a new loan for £5000 over 5 years which I have been quoted @3.4% and fund the rest with the savings, or pay off the existing loan (no early repayment fees) and get an £8000 loan over 5 years which I have been quoted @2.8%?
Hope this makes sense, thanks in advance for you advice. 

DrEskimo

Why not just buy a £4,000 car?

You say you've been quoted 3.4% and 2.8%, but is this what you have actually been offered, or is this just the advertised rate?

littlelegs23

Thanks for you reply, I could just buy a £4000 car but would prefer something a bit newer andbhopefulky more reliable as it will be used quite a bit. The rates are just the advertised rates but I've not had a problem securing credit before and have a good credit rating so I'm confident I would get these. 

Fighter1986

You're likely to get better rates from loans over £7,500; consolidating the existing loan is likely to be cheaper.

You might find it challenging to get the advertised APR on a loan while you already have an outstanding loan. 

See if you can find a lender which can provide you an APR off the back of a soft search / quotation search, having said that lenders offering 2.8% at the moment are thin on the ground. 

You might be best advised to find a car for £4,000 as suggested. Either that, or use a 0% credit card. 

MBNA offer 0% for 24 months on Money Transfers into your bank account for a 2.99% fee. You can check your eligibility for the amount you need to borrow on their website without affecting your credit worthiness. They're quite flexible and this might be your best bet. If you still owe anything on the MBNA card after 23 months you can always bunnyhop it over to a new 0% balance transfer card. You might even find they extend enough of a limit to put your existing loan on 0%, too. They're often accommodating of the limit you ask for while applying as long as your credit history shows sufficient trustworthiness. 

DrEskimo

littlelegs23 said:

Thanks for you reply, I could just buy a £4000 car but would prefer something a bit newer andbhopefulky more reliable as it will be used quite a bit. The rates are just the advertised rates but I've not had a problem securing credit before and have a good credit rating so I'm confident I would get these. 

There is little guarantee that a £9k car will be more reliable than a £4k car.
How urgent is it that you need another car? Can you wait and save some more?

Ideally I would get out of the cycle of constantly using credit to achieve things. All it's doing is costing you money and increasing your exposure to financial risk should things change in the future (which they have a habit of doing...).

If it were me, I would be settling the loan with your savings now, and then building a new savings pot for the next car. Whatever you have by the time you need it is what I would spend. You can always keep saving (i.e. with the money you are now not spending on loans) and then sell and upgrade to something else in a year or two down the line.

But....if you must borrow....I would clear your current loan and then borrow a new amount a few months later if possible. As above, also look at cheaper forms of borrowing using credit cards.

enthusiasticsaver

If you must borrow to buy a second car I would pay off the first so you just have the one loan.  

Loans over £7500 tend to be a lower rate but beware of buying cars entirely on credit as they depreciate so quickly that very soon the loan is higher than the value of the car. Is it imperative you have a second car now? How secure is your job? 

DrEskimo

enthusiasticsaver said:

If you must borrow to buy a second car I would pay off the first so you just have the one loan.  

Loans over £7500 tend to be a lower rate but beware of buying cars entirely on credit as they depreciate so quickly that very soon the loan is higher than the value of the car. Is it imperative you have a second car now? How secure is your job? 

Absolutely. Borrowing near 100% of the cars value over 5yrs is not wise.
I tend to suggest that you never borrow more than 50% of the cars value, and not for longer than 3yrs. Going with a basic rule of thumb that cars depreciate around 50% of their value over that 3 yr period gives you that security that the car value is extremely unlikely to exceed the finance settlement. Always good if you find yourself in financial hardship and not having to use crucial savings to get out of a finance agreement.

Fighter1986

Depends on the car. OH recently borrowed £8,500 to buy an E55 AMG.

That's not going to depreciate. Looking at market trends, in a few years it could go the way with as the 1990s M5s, they've quadrupled in value over the last decade. 

MinuteNoodles

It won't go the way of 1990s BMW M5s because world and dog who get Mercs on PCP tend to go for AMGs. Hell I'm a lorry driver and we must have at least half a dozen C class Merc AMGs owned by other drivers. Mercedes AMG cars have never had the long term allure that the BMW M series have had. Mercedes C and E class are seen as "old mans car". 

MinuteNoodles

littlelegs23 said:

Thanks for you reply, I could just buy a £4000 car but would prefer something a bit newer andbhopefulky more reliable as it will be used quite a bit. 

A £4000 car is more than capable of that. Cars have long since got past the point where they break down all the time. A modern car with a decent service history is more than capable of doing 10 years and/or over 100,000 miles without turning into a pile of rust or needing to be in the garage on a regular basis. The 10 year old Mondeo I sold to my parents with 155,000 miles on the clock which I'd owned the previous 8 years and over 100,000 miles had only been into the garage for a repair 3 times in its entire life even though at 7 years old having clocked over 100,000 miles I was still doing 17,000 miles a year in it including a couple of thousand miles towing a 1.5 tonne twin axle caravan. My parents have just sold it on and it's still at over 160,000 miles on the original exhaust, clutch, turbo, injectors, DPF filter and EGR valve. It's not the 1970s anymore. Depending on the distance you're travelling to work £4000 would buy you a city car just a few years old. 

Fighter1986

MinuteNoodles said:

It won't go the way of 1990s BMW M5s because world and dog who get Mercs on PCP tend to go for AMGs. Hell I'm a lorry driver and we must have at least half a dozen C class Merc AMGs owned by other drivers. Mercedes AMG cars have never had the long term allure that the BMW M series have had. Mercedes C and E class are seen as "old mans car". 

Oh man it's bloody fantastic having that image though. 

Some little kid on the slip road or at the lights thinking they're gonna tear away from the "old man's car" and you f*** off into the distance unleashing 474 horsepower from your supercharged V8. 

The look on the poor sods face when his spanking new Audi is utterly obliterated by a 17 year old "old man's car" is worth £8,500 every. Single. Time 😂😂😂

Doug DeMurio recently borrowed one and did an excellent review too, he had a lot of praise, I'm very glad about that as his opinions are quite influential on collectors and impact the value of noteworthy cars.