Personal loan versus cash buy

foxy-stoat · 20 February 2019 at 11:54AM

James6363 wrote: »

I don’t need to accept the loan if it is cheaper to pay cash and I already have a couple of the smaller 5% accounts.

So the answer would appear to be, take the 2.9%apr loan over 2 years as the interest on the £12000 savings would cover the cost of the loan??

Still trying to work out how you do not already know which is cheaper....

Pay 2.9% to a bank to borrow £12,000
vs
Lose out on 1.5% interest from money you already have

Any way - good luck with your new car.

James6363 · 20 February 2019 at 1:06PM

Thanks for all of the advice so far.
I now have a few more details:
The bank loan over 1 year would cost £1015.58 per month, which gives a total repayment of £12186.85 for the year.
The interest on £12000 at 1.5% would be £180 (no tax payable)
Therefore the actual cost of the loan for 1 year would be £6.85
If however I pay cash for the car, the cost would be the loss of interest for the year (£180) although this would be offset by the interest on the payment of £1015.58 that I would repay into the 1.5% saving account.
I think my question is, would this repayment into savings come close to covering the £180 lost by the initial payment. If not then it would appear that a one year loan would be the preferred option…
How would these figures work for a 2 year loan costing £515.05 per month?

foxy-stoat · 20 February 2019 at 1:47PM

Naaaa, paying cash and putting £1000 a month back into your savings would be the best way to buy the car.

But you sound like your going to take a loan anyway so good luck to you.

AnotherJoe · 20 February 2019 at 1:55PM

James6363 wrote: »

Thanks for all of the advice so far.
I now have a few more details:
The bank loan over 1 year would cost £1015.58 per month, which gives a total repayment of £12186.85 for the year.
The interest on £12000 at 1.5% would be £180 (no tax payable)
Therefore the actual cost of the loan for 1 year would be £6.85
If however I pay cash for the car, the cost would be the loss of interest for the year (£180) although this would be offset by the interest on the payment of £1015.58 that I would repay into the 1.5% saving account.
I think my question is, would this repayment into savings come close to covering the £180 lost by the initial payment. If not then it would appear that a one year loan would be the preferred option…
How would these figures work for a 2 year loan costing £515.05 per month?

Your. Basic ssumtption about how much you would lose on interest is totally wrong.
In month one you'd lose one month interest on all 12000 next month you'd put 1000 back so you'd lose one months interest on 11k next month on 10k and so on. Roughly it works out youdlose the interest on half the 12k so you'd actually lose about £90 in missed interest not £180.

So as said by everyone it's cheaper to forgo the interest than pay nearly double to borrow it. IT MUST BE because if it isn't everyone should be rushing off to borrow money at 2.9% and invest it at 1.5%. What could possibly be wrong with that eh?

overlander · 20 February 2019 at 2:29PM

I can only speak from experience of buying a nearly new car 3 years ago. NO dealer was interested in selling me a car using cash as they said they would make a loss selling at the sticker price. They made the profit on the finance which in my case was the way to go. Took the finance and settled it early 6 months later win win.

System · 20 February 2019 at 2:53PM

overlander wrote: »

I can only speak from experience of buying a nearly new car 3 years ago. NO dealer was interested in selling me a car using cash as they said they would make a loss selling at the sticker price. They made the profit on the finance which in my case was the way to go. Took the finance and settled it early 6 months later win win.

It would have been an even bigger win if you'd settled in 14 days and therefore not had to pay any interest.

And they would have sold you it for cash if you'd got up and started walking out the door. The claim they're making a loss selling at the sticker price is a complete and utter lie.

enthusiasticsaver · 20 February 2019 at 3:23PM

It is always cheaper to borrow your own money. Unless you want to see if you can find accounts paying over 2.9% it is more MSE to use savings.

Personal loan versus cash buy

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