Saving vs loan (pcp), deposit for house next year...

skivy71

Hi, struggling with a dilemma.

Have around £40k, which I can put to work and earn 9% annual interest, with 3mo lock in (and compounding).

However, I need a car and have rule out "a banger" as used cars have risen up in price - want something that i can resell... (currently around £15k mark).

So, plan A - buy the car, no payments and let the remaining (say £25k) do the 9% growth thing.

plan B - leave the 40k to grow (and have a bigger deposit next year), but take out a pcp on a car - my choice was a Honda e @ 7% APR (around £650pm).

Preserving the capital seems like a good choice, but £8k a year to "in effect" lease (unless I buy / flip at the end) doesn't seem like the best move.

Any thoughts?

Pompeydave1967

I’d go for plan A , taking out a pcp will have an affect on a mortgage offer. Also do you need electric ? Those Honda e’s have a very short range so long journeys are out. I don’t know your circumstances but buying a economical petrol sounds good at the moment rather than tie in for a very expensive pcp.

skivy71

I had a Honda e on loan for about a month and with 7.5p/kwh charging, was mega cheap... but that fuel saving is certainly offset by increased cost... if there was ICE Honda e, i think it might be 10-15k cheaper.

This would reduce the PCP payments, but given the rates and lock in, still not sure.

But I keep getting drawn back to more capital means better deposit / better house / lower mortgage.

Pompeydave1967

Well with mortgage rates going up all the time a bigger deposit and lower mortgage is ideal.But if you take out a pcp check your mortgage offer. My son is looking around at mortgages at the moment and a loan / pcp severely affects his borrowing power. 

Could you not get away with a cheap ish car for now then when in the house see what financial position you are in for a better car.

skivy71

I wasn't aware that having an existing PCP would hurt that much, in actual fact, I was hoping it would increase my attractiveness (in showing credit history - which isn't the best). I've been searching cheap cars for some time now... Seems car prices (used) have gone up with inflation, lol. Seems to be >10k at the least, to get something you can rely on.

MX5huggy

skivy71 said:

I wasn't aware that having an existing PCP would hurt that much, in actual fact, I was hoping it would increase my attractiveness (in showing credit history - which isn't the best). I've been searching cheap cars for some time now... Seems car prices (used) have gone up with inflation, lol. Seems to be >10k at the least, to get something you can rely on.

£650 month of outgoings makes a huge dent in your affordability calculations. It’s 10 years plus ago but my wife was paying about £20 pound a month on a student loan that had £500 remaining on it Nationwide wouldn’t lend us something like £20k extra because of this, we paid it off next morning in full. Problem gone, they didn’t care I owed £9k in student loan because I wasn’t making any payments on it because I wasn’t earning enough. 

Albermarle

Have around £40k, which I can put to work and earn 9% annual interest, with 3mo lock in (and compounding)

Can you tell us where we can get a guaranteed 9% interest? I am sure there would be huge demand for such a product!