To use savings or loan

Dave05

Hi

Hope something can guide me here, I'm looking to get a car and currently I can get a loan for 5.7% on 25k roughly paying back about £3500 interest if I take the term of 5 years, savings are now at a 5% variable or 6% fixed, I'm thinking do I get the loan and keep the 25k in the bank incase I need it but stick it in a high interest saver whilst I have the loan term then (if all says as is) any interest earned can also go towards paying the loan. Would this work or my maths wrong? Ha

Richard1212

Even without knowing the price of the car, I can say that you would be far better off using your savings instead of lumbering yourself with a 5 year loan that will eat away at your whole budget for what is actually a pretty long time. You are one of the lucky people who can buy a car outright----use that good fortune. All the money you save by doing that can be put into high rate savings account every month, and it won't be too long before you have built up a nice little nest egg again. Happy motoring.

macman

Remember that, after 5 years, your car, assuming buying new, will be worth £12.5K at most. It'll lose at least £2.5K pa average.

Jami74

Dave05 said:

Hi

Hope something can guide me here, I'm looking to get a car and currently I can get a loan for 5.7% on 25k roughly paying back about £3500 interest if I take the term of 5 years, savings are now at a 5% variable or 6% fixed, I'm thinking do I get the loan and keep the 25k in the bank incase I need it but stick it in a high interest saver whilst I have the loan term then (if all says as is) any interest earned can also go towards paying the loan. Would this work or my maths wrong? Ha

If you take the loan, then in four years time you'll still be paying £480 a month for a car that is no longer new and shiny, whereas you probably won't begrudge the £480 that you are putting into savings each month.

Think of it another way, would you take a loan of £25k at 5.7% and put it in a savings account paying 5% variable or 6% fixed?