Loan v savings

Dave05

Hi 

Im looking to get a car for 25k, I have that in savings but id prefer to keep that incase other life things crop up, now I can get a loan paying roughly 4k back interest over 5 years at a rate of 6.3%

I was thinking If I put the 25k cash I have in savings at the current rate of 5.16% obviously lower than the loan but I'll still gain some interest on that rather than use it or would people just advise to ditch the loan and just pay cash with the current rates 

easyasonetwothree

Do you have the option to pay by card? You could get a 0% purchase card for at least some of the car payment, and pay the rest in cash. I'd try to not use the loan if I had the chance.

Dave05

hi thanks for the reply, to be honest ive never looked at them, are you given a garenteed amount on the card or is it like a credit card you apply and just see how much your given? Also out of interest would you just not go for the loan because of the rate? thanks again

Veteransaver

It doesn't really make a lot of sense to get a loan where the interest is more than what you would get in savings interest.
Interest rates look likely to fall too whilst the loan would be fixed, so the spread is likely to widen.
Have you considered leasing instead?

MEM62

Dave05 said:

Im looking to get a car for 25k, I have that in savings but id prefer to keep that incase other life things crop up, now I can get a loan paying roughly 4k back interest over 5 years at a rate of 6.3%

Whatever way you look at it I personally do not see the loan making sense.  Firstly, that £25K car is instantly going to cost you £29K with interest.  So you are already £4K behind the game even fore the value of the car falls like a stone.  Agreed if you keep the cash you have the comfort of being able paying to off the loan should you need to.  But if you use any of the cash for other emergencies you are eroding that security. 

I would look for a £15-20K car, pay cash and keep the rest of your money in case 'other life things crop up'.  

Nasqueron

easyasonetwothree said:

Do you have the option to pay by card? You could get a 0% purchase card for at least some of the car payment, and pay the rest in cash. I'd try to not use the loan if I had the chance.

Car dealers frequently won't take more than an initial deposit (say £500), the chances of a 0% purchase card having a decent limit and the dealer being prepared to take say £10k payment is pretty low - not impossible but unlikely

CliveOfIndia

If it were me I'd use the savings to buy the car, then re-build the savings pot.  If the repayments on the loan would be, for example, £500, then you pay £500 into your savings account each month.  After the 5 years, you've got more than £25K back in your savings as you've effectively paid yourself the 6.3% interest - plus you'll hopefully have been earning interest on that money as well, so it's a double-bonus for you.

Martico

I'd also buy - if "other things crop up", you can always then take out to a loan if you need to. In the meantime, build your savings up again

enthusiasticsaver

If you take out a loan at that rate then the car will cost you £29k but only be worth £25k and falling as they depreciate quickly especially expensive ones. Interest rates are not likely to stay high but will probably start to fall very shortly now inflation is lower. I would look for a cheaper car if that is going to clear out all your savings and pay with cash.