Loan or savings to buy car

Popeye84

Hello all,

Looking to purchase a new car but don’t know whether to use savings or get a loan.

The money is currently in a Santander 123 account which I believe is paying 2% interest.

The car/loan amount is £25k.

I can get a loan with Nationwide or Santander at 5.9%.

I am of the thinking that paying cash would be better than a loan….would this be the best option?

thank you 

DE_612183

depends on your situation - obviously in the long run a loan will cost you more, but paying it all in cash means you no longer have access to that money - ( how much do you have in savings in total? )

if you are unsure - why not go half and half ?

MyRealNameToo

Popeye84 said:

Hello all,

Looking to purchase a new car but don’t know whether to use savings or get a loan.

The money is currently in a Santander 123 account which I believe is paying 2% interest.

The car/loan amount is £25k.

I can get a loan with Nationwide or Santander at 5.9%.

I am of the thinking that paying cash would be better than a loan….would this be the best option?

thank you 

Why would you pay 5.9% interest to enable you to keep getting 2% interest?

In principle its a no brainer however I would caveat that its sensible to have some cash reserves just in case and so wouldnt want to be left with no savings at all. So it somewhat depends on how much your savings are -v- the value of the vehicle. 

Popeye84

Thanks all.

£200k in savings that can be accessed easily with more in ISA’s as well so I will have enough for emergencies if needed.

eschaton

Silly paying 5.9% when you don’t need to borrow. 

I borrowed between 50-67% of the cost of 4 new cars between 1994-98. I paid the last one off and then started buying all cars upfront from 2000. 

I always maximise interest received and minimise interest paid. 

I decided against buying a new car last year and went on a fast paced mortgage free journey instead. 

Despite being mortgage free I still wouldn’t borrow for a new car. I’ll get one if/when I can afford to buy one. 

Isthisforreal99

And you know you can get 5.9% APR with those lenders how? Have you actually applied and been offered that rate?

MEM62

Loan or savings to buy car 
Savings all day long.  That is what they are there for.

molerat

A £25K 5.9% loan will cost you something like £760 pm over 3 years, £586 over 4 years and £480 over 5 years adding between £2.3 and £4K to the cost.  Buy with savings and pay it back monthly over whatever timescale you were going to repay the loan.

R_P_W

Popeye84 said:

Hello all,

Looking to purchase a new car but don’t know whether to use savings or get a loan.

The money is currently in a Santander 123 account which I believe is paying 2% interest.

The car/loan amount is £25k.

I can get a loan with Nationwide or Santander at 5.9%.

I am of the thinking that paying cash would be better than a loan….would this be the best option?

thank you 

You have £25k in your current account only paying you 2% interest?  Criminal.

If you really have £200k in savings elsewhere then of course you shouldn't take a loan at 5.9% (you've said you can get 5.9% but why do you assume that?)

Altior

Must be a fair chance that the 2% interest is being taxed as well!

There are more sophisticated ways of achieving it, but if the choice is a straight up loan at 5.9% or savings earning 2%, then using savings is the no brainer option.

kimwp

Popeye84 said:

Thanks all.

£200k in savings that can be accessed easily with more in ISA’s as well so I will have enough for emergencies if needed.

Definitely use savings if you have 200k (or is that a typo and it's actually 20k?).