Looking for advice

baser999

Looking at buying a new car and after p/ex will probably need to find another £10k. Presently I have some savings - £4k with Santander, £8k with Chase, £5k in Secure Trust (all earning a minimum of 5%) as well as just short of £4k in Premium Bonds. I’m retired and my state and works pension along with small annuities cover our everyday bills with a monthly surplus of £3-400 which I’m moving into one or either of the savings accounts or bonds. 

I could draw the money I’d need from savings but I’d prefer to leave funds there to cover any future emergencies. In the circumstances I’m wondering about taking £2500 from savings and then borrowing £7500 from the bank which at their current rate of 6.2% over two years runs out at £332pm which would effectively be covered out of my monthly surplus; instead of moving it to savings or buying bonds I’d simply leave the money in my account to make the repayments. The loan would effectively be costing me just 1.2%.
Is this the best way forward? 

Thank you

dealyboy

Hi OP ...

I am also an OAP (badge of honour) ... I think you're wise to want to not reduce your savings/emergency funds of about 20K. I presuming you're budgeting for £7,500 to get you a good second hand petrol/diesel car and I don't think your plan is a bad one. Just a couple of thoughts ...

What with net zero, the future is uncertain for hydrocarbon based fuels for cars from about ten years time.

Have you thought about leasing? Many of my neighbours have lease cars and seem to get good deals with brand new cars, and of course they come with purchase options after two or three years. To be honest if/when my little old petrol car packs up, that will be the first thing I will look in to.

Shakin_Steve

You may have issues with affordability tests quoting those figures. You are effectively using all of your spare cash each month to pay off a loan, which the lender may think is a tight squeeze.

Martico

I'd buy the car from savings/bonds and replenish at the rate you've been saving at already. It's cheaper for you that way and is arguably what your savings are there for. If another emergency comes along, that'd be the time to consider a loan.

baser999

Shakin_Steve said:

You may have issues with affordability tests quoting those figures. You are effectively using all of your spare cash each month to pay off a loan, which the lender may think is a tight squeeze.

I didn’t think it would be an issue. As I said, we cover our monthly bills and surplus monies are moved from current to a savings account and NSI by way of standing order. I’d cancel those SOs thereby increasing the monthly surplus to cover the loan. The bank can see what I already have in the linked-savings account and if needs be can be made aware of the other funds, all of which are in instant access savings accounts.

MEM62

Borrowing money to buy an asset with a value that falls like a stone is unwise, particularly so when you have the cash available.  Leaving it in the bank might give you more emotional comfort but it gives you the worst financial outcome.  'Borrow' the money from your savings and replace it with a monthly payment equivalent to what your repayments on the loan would have been.  If an unforeseen emergency crops up that costs you more than the £11k you have left to sort you might have to borrow to cover that.  However, being realistic that is unlikely to happen.    

xylophone

No 0 % finance through the dealer?

Relative (also SP age) could have paid cash but p/xed old vehicle and took 2 years 0% on the new - he said he thought he might as well

keep the interest on the sum in question.

Nasqueron

MEM62 said:

Borrowing money to buy an asset with a value that falls like a stone is unwise, particularly so when you have the cash available.  Leaving it in the bank might give you more emotional comfort but it gives you the worst financial outcome.  'Borrow' the money from your savings and replace it with a monthly payment equivalent to what your repayments on the loan would have been.  If an unforeseen emergency crops up that costs you more than the £11k you have left to sort you might have to borrow to cover that.  However, being realistic that is unlikely to happen.    

It's a second hand car, the value "dropping" is not something anyone should get stressed over, you buy something, you use it, it's worth less than it was before. Unless you're buying an older car and think you can sell it for a paper profit in 10 years, no-one should care about depreciation. You get your money's worth from using the car

Nasqueron

baser999 said:

Shakin_Steve said:

You may have issues with affordability tests quoting those figures. You are effectively using all of your spare cash each month to pay off a loan, which the lender may think is a tight squeeze.

I didn’t think it would be an issue. As I said, we cover our monthly bills and surplus monies are moved from current to a savings account and NSI by way of standing order. I’d cancel those SOs thereby increasing the monthly surplus to cover the loan. The bank can see what I already have in the linked-savings account and if needs be can be made aware of the other funds, all of which are in instant access savings accounts.

The trouble is, while your logic makes sense to you, banks don't see it that way. Savings cannot be used as "income" or as security for the loan for borrowing purposes. You could take the loan and then go on a 6 months cruise the day after and spend your savings in an instant. Use your savings, do not take a loan out and pay interest at what will be a higher rate than you earn on savings i.e. you're wasting money for the sake of having more in a bank

Nasqueron

dealyboy said:

Hi OP ...

I am also an OAP (badge of honour) ... I think you're wise to want to not reduce your savings/emergency funds of about 20K. I presuming you're budgeting for £7,500 to get you a good second hand petrol/diesel car and I don't think your plan is a bad one. Just a couple of thoughts ...

What with net zero, the future is uncertain for hydrocarbon based fuels for cars from about ten years time.

Have you thought about leasing? Many of my neighbours have lease cars and seem to get good deals with brand new cars, and of course they come with purchase options after two or three years. To be honest if/when my little old petrol car packs up, that will be the first thing I will look in to.

There is no uncertainty, the sale of NEW ICE cars will be banned from 2035, you could buy a new one 31/12/34 and run it for 15 years if the parts are available and fuel is affordable, you could buy a second hand one likely in 2040 and beyond. I hope you live a long and healthy life but you and OP are almost certainly going to be long past driving by the time ICE cars are finally off the road.

baser999

Nasqueron said:

baser999 said:

Shakin_Steve said:

You may have issues with affordability tests quoting those figures. You are effectively using all of your spare cash each month to pay off a loan, which the lender may think is a tight squeeze.

I didn’t think it would be an issue. As I said, we cover our monthly bills and surplus monies are moved from current to a savings account and NSI by way of standing order. I’d cancel those SOs thereby increasing the monthly surplus to cover the loan. The bank can see what I already have in the linked-savings account and if needs be can be made aware of the other funds, all of which are in instant access savings accounts.

The trouble is, while your logic makes sense to you, banks don't see it that way. Savings cannot be used as "income" or as security for the loan for borrowing purposes. You could take the loan and then go on a 6 months cruise the day after and spend your savings in an instant. Use your savings, do not take a loan out and pay interest at what will be a higher rate than you earn on savings i.e. you're wasting money for the sake of having more in a bank

Went on-line and the loan has been agreed in principle. Basically just need to say if I want to go ahead with it. Car still at dealers going through servicing, prepping etc so no final decision made.