Pay Off Car Faster or Sell For Cheaper Car?

RichardCUK

I need some advice please as what's best to do.

I have a 20 Plate Leon. 4.5. Years left on a loan at 3% interest but it's depreciating faster than I'm paying it. Currently £230 a month. There 11.5k left in the loan

I was thinking of selling it. I think I can get 10k for it and pay the other 1.5k reminder from savings. 

Then buy a cheaper car. I've seen a 12 plate Auris 88k miles, one own and full history. I could in theory pay this car off in 17 months. 

The. I could be loan/car payment free.

OR do I try to pay off the big loan faster instead? But there's no chance in hell I could pay it off in 17 months. 

So basically I'm thinking, get rid of newer car for an older one but more reliable make so I am loan/car payment free sooner rather than later.

Also how I got in this mess I'd another story of having a car but taking out a too long of a loan

Arunmor

A 12 plave care is already 12 years old and approaching banger territory.

The lesson you have hopefully learned is don't take out car loans for more than 3 years (4 perhaps at a push as long as it is relatively young, but not ideal.)

Best thing to do is try and pay the current car off as quickly as possible.

facade

Pay off the loan as quickly as you can, you don't need to do it in 17 months.

You would be throwing away £1500 right now, even assuming that you can get £10K for it.

The idea of negative equity is irrelevant, the only way to "fix" it is to stump up the negative equity yourself now and buy yourself out of the loan (and effectively pay for it twice!) or suck it up at the end (when we call it "depreciation" and all cars suffer that- except mine by some miracle ), but meanwhile you have a car for the whole term.

Can you overpay the loan?

You might have to create a savings account and pay in all the overpayments until you have enough to settle the remaining loan.

jimjames

If the loan is only at 3% then don't pay it off faster, put the money in a savings account that is paying over 5% and use that to settle it which is a better decision financially. If saving monthly you could even get up to 7% interest with a regular saver account which will help towards clearing it faster.

daveyjp

Keep what you have.  Start saving hard into a high interest account (you already have £1500 to get you started), when savings equal the settlement amount pay the loan off.

May be a couple of years, but buying a 12 year old car is always a gamble.  A Toyota should be reliable mechanically, but they aren't immune to wear and tear of other components and corrosion.

Next car loan only borrow over a maximum of 3 years.

Herzlos

Throwing away £1500 to clear the car and then taking out finance on a cheaper car doesn't seem like that great an idea. You'll also get nowhere near 3% now, and a 12 year old car could have more maintenance bills.

At 3% I'd be tempted to see if I could put money into  savings account paying more than 3% and leaving the car finance as it is, then either use the savings to clear the finance later or a contribution to the next car / rainy day fund.

That's if you can afford the £230/month, but if you're talking about overpaying on it then I think it's a safe assumption you can.

Goudy

Stick with what you have and try and pay it off as fast as you can.

Pay extra payments in lumps you've managed to save, say every 6, 9 or 12 months as the money you save will have chance to earn a bit of interest.
You've borrowed at 3% so you need to give the money saved a chance to earn more rather than just coughing up extra every month.

OK, paying extra early will save you some of that 3%, but you need to balance it out
At the moment, more than 3% is easy, so take advantage while it lasts, you can always go to paying the extra per month later on if the savings rates drop.

In the mean time squeeze every penny and save to the max.

Some bank accounts have linked saving account that as mentioned, pay a decent interest on regular savings accounts.
Best results are if you can max them out for the full term, but you can even earn some interest on what you'd normally just hold in your current account for the month.

Barclays have a linked "rainy day saver" paying 5.12%, with the Barclays app you can move money between them instantly.
Just move over the maximum you can each month then drip it back into your current account as and when needed, even if it's just for a few days or a week. That's free money you wouldn't normally think about getting interest on

Also, look at the rest of your outgoings.
Mobile out of contract? Shop around for cheap Sim only.
Broadband out of contract? Shop around. 

Don't think of it all as a chore, think of it ask a hobby.

Bigphil1474

OP, you need a spreadsheet - work out how much you have saved on one hand, and how much the outstanding balance is on the car on the other. Increase the amount saved each month in line with what you have put away in an account that pays more than 3%, and decrease the amount outstanding on the loan depending on how it's set up. (Have you worked out the amount outstanding or just multiplied the remaining months to pay x £230?). When the 2 figures get near to each other, pay off the loan. If your car is reliable, selling it and buying a 12 year old car is a risk. 

Nobbie1967

Keep the car and set up a regular savings account. You can get upto 7%, but you may go for a lower rate to get better access to the money should you need it. Even so, it’s better than the 3% you are paying so just leave that finance running.

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/#banklinkedtable

RichardCUK

Thank you to everyone who has replied and given me advise.

I currently have £3700 in savings, £2500 in T212 invest account (invested) but I get 5.12% interest and it's paid daily. I also have another £600 in Rolls Royce Stock up 30% and £600 in SPY.

I will try and add an extra £200 every month to my savings/investments until I hit the remainder of the loan and then pay it off.

If I can do that I'd 2 years I'll have a 6 year old car fully paid off, then after refocus the £400 plus I'm paying/saving on my car into my pension/emergency fund 

Bigphil1474

Just remember to make sure that at least some of your savings are easily available for repairs. My six year MOT and service was a squidge over £1k last month, and that was with £300 off from warranty cover.