Car woes, i'm a nwebie, pls be kind if this is in the wrong place!

mightyYT

Hello all,

Been using the site for a while with all the great tips, well worth a read; great advice.

However i'd like to know what people on here think is the best thing for me to do about my car.

I've got a TT at the mo bought for £22k 12months ago, used a Tesco's loan and got £25k over 10yrs!!

The original thinking was that the amount i was paying off what was owed would be equal to or more than the depreciation amount; isn't working like that though.

My niave calcs (never had a loan before) went something like:

Monthly repyts £280/month x 120months (loan period) = £33,600 less original amount borrowed (£25k) = £8,600 in interest over 120months = £72ish.
Therefore each month i'd pay £72 in interest and £208 off the money owed so after year one i'd have paid £2,500 off the original £25k = £22,000; still following?

but tesco say i owe more like £23,700.

i've done my calcs and the only way i can see to pay off what i owe over the next couple of years is to sell the TT, get a diesel that knocks out 50mpg and use the £1k saving in fuel to go towards the loan.

i'm pulling my hair out working out what's best to do! should i sell, buy cheap motie pay back loan over time; buy cheap motie and use the saved money as investment to claw back cash; keep it for 10 yrs.........................etc

Can anyone help / give advice pls, pretty pls?? i'll buy you a beer if it helps my case; thanks.

PS (still have £2.5k in the bank from the initial loan).

lipidicman

The problem arises because the balance of interest and capital changes over the lifetime of the loan. At the start the amount of capital repayment will be less, thus the higher figure that tesco have calculated. You have worked out the average over the life of the loan.

There is a loan amortization template in excel - try it. I reckon you are paying 6.2% interest and this shows that the first months capital repayment is £150 rising to £160 at the end of year one.

Why do you have the 2.5k in the bank - why not pay off some of the loan with it - that money is costing you.

Woby_Tide

I'd say keeping it for 10 years or selling it and buying cheapest diesel you can are best options if that's what you really want. Calculations are way off is where it went wrong, the interest doesn't stay the same throughout the loan, it's a percentage of the amount owed. i.e. 10% interest rate (and I'm simplyfying it a bit for the illustration) means that in the first year you would pay £2500 interest or £200+ a month, with the remaining £80 going towards the capital, so 2nd year loan would be £25k - £960 paid back = £24k, this year the interest would be £2400 and so on

mightyYT

lipidicman wrote:

The problem arises because the balance of interest and capital changes over the lifetime of the loan. At the start the amount of capital repayment will be less, thus the higher figure that tesco have calculated. You have worked out the average over the life of the loan.

There is a loan amortization template in excel - try it. I reckon you are paying 6.2% interest and this shows that the first months capital repayment is £150 rising to £160 at the end of year one.

Why do you have the 2.5k in the bank - why not pay off some of the loan with it - that money is costing you.

Great, thanks - can you point me in the direction of that XL spreadsheet pls? cheers

mightyYT

Woby_Tide wrote:

I'd say keeping it for 10 years or selling it and buying cheapest diesel you can are best options if that's what you really want. Calculations are way off is where it went wrong, the interest doesn't stay the same throughout the loan, it's a percentage of the amount owed. i.e. 10% interest rate (and I'm simplyfying it a bit for the illustration) means that in the first year you would pay £2500 interest or £200+ a month, with the remaining £80 going towards the capital, so 2nd year loan would be £25k - £960 paid back = £24k, this year the interest would be £2400 and so on

on top of the annual interest pyt then i'll be paying and early settlement fee too then?

mike_paterson

If you like the TT - well why don't you sell your current one and buy a 3-4 year old one with a private plate - nobody but you will know the difference and you'll be able to pay 10k off the loan (check early repayment terms though)

lipidicman

mightyYT wrote:

Great, thanks - can you point me in the direction of that XL spreadsheet pls? cheers

It is one of the templates in all the recent versions of excel. It is in dollars, but just ignore the dollar signs and mentally replace them with £'s!