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I got a loan approved for £20,000 at 4.2% APR to Get a car with cash and pay the payment back at £370 per month over 5 years.
I will pay the loan back early as I have a good amount of disposable after ALL bills and expenses are paid. Only debt I have is my mortgage and also have a steady full time job making good money.
Now, I have cold feet and can’t come to spend the money and in two minds as to hand the money back or not and just save for it.
I have £10,000 in savings and a bonus in April so was originally going to pay cash for a GT86 at around £15,000 .... BUT figured if I got a loan it would allow me to keep my savings in the bank.
I would take my £20,000 loan and buy a car at £15,000 and just hand back the extra to the bank so I’d have a £15,000 loan instead.
Am I right to have cold feet? Was getting the loan a stupid idea?
I will pay the loan back early as I have a good amount of disposable after ALL bills and expenses are paid. Only debt I have is my mortgage and also have a steady full time job making good money.
Now, I have cold feet and can’t come to spend the money and in two minds as to hand the money back or not and just save for it.
I have £10,000 in savings and a bonus in April so was originally going to pay cash for a GT86 at around £15,000 .... BUT figured if I got a loan it would allow me to keep my savings in the bank.
I would take my £20,000 loan and buy a car at £15,000 and just hand back the extra to the bank so I’d have a £15,000 loan instead.
Am I right to have cold feet? Was getting the loan a stupid idea?
How is depreciation looking on GT86s at the moment?...if you can pay off the loan gradually but maintain positive equity with the car, then I don't see the harm in it, you'll have the GT86 as security if your situation changes, and you can sell up and wipe the slate clean.
I did similar with my DC5 which i owned for 2 years...actually had a couple grand leftover.
I did similar with my DC5 which i owned for 2 years...actually had a couple grand leftover.
Ignoring the fact you have savings and just considering loan and car you will always have an asset worth less than your outstanding balance with the bank for a good portion of the loan period.
If you have savings that could cover this should you need to get out of it then fine, if you don't then its a risk.
If you have savings, are they earning more than the APR on your loan? If not, why not use them as part payment?
I'd probably use a combo of part savings part loan
If you have savings that could cover this should you need to get out of it then fine, if you don't then its a risk.
If you have savings, are they earning more than the APR on your loan? If not, why not use them as part payment?
I'd probably use a combo of part savings part loan
Going from what I did in a similar situation, had 15k of savings and wanted to change cars. Could have got a loan but instead just went and bought the car cash (it was 10k) and then started replenishing the savings. You have a mortgage already and therefore a credit score so it doesn't really add anything to be getting another debt. You will still have a car to sell at the end. Before you know it, the savings will have built back up. You can then use the potential debt when it is really needed, should it ever be.
One can overthink buying a car. Bottom line: can you afford it (either capital outlay or repayments); do you need it, or do you want it? Everything else is distraction.
99% of cars are depreciating assets. 100% of cars cost you money to run and maintain in addition to the depreciation. For many people buy a car outright is not an option. Borrowing money and paying interest, or chucking spare capital into a cash hungry depreciating asset aren't good uses of money either way.
Yet that what people (me included) do everyday. Because we can afford it, and because we persuade ourselves we need a car, then adjust our expectations to what we want, rather than need.
So what though? Need it, want it, can afford it, get it. Simple.
99% of cars are depreciating assets. 100% of cars cost you money to run and maintain in addition to the depreciation. For many people buy a car outright is not an option. Borrowing money and paying interest, or chucking spare capital into a cash hungry depreciating asset aren't good uses of money either way.
Yet that what people (me included) do everyday. Because we can afford it, and because we persuade ourselves we need a car, then adjust our expectations to what we want, rather than need.
So what though? Need it, want it, can afford it, get it. Simple.
edthefed said:
Paying interest on an asset that is depreciating ???
Pay cash for the car
Replenish your savings monthly
Or use the car payment to start paying down your mortgage
Only borrow money and pay interest if you have no other choice
This is great advice which someone else posted too. I never thought of it like that but it makes perfect sense. Buy cash, why pay 4.2 percent if you don't have to. Put 370 a month into your savings account rinse and repeat. That way if you fancied a change sooner than 5 years then you won't have to mess about with clearing loans off etc. Pay cash for the car
Replenish your savings monthly
Or use the car payment to start paying down your mortgage
Only borrow money and pay interest if you have no other choice
Something tells me i would get bored of a gt86 well before 5 years is up.
To be contrary I’d use the loan and pay it off early. Keep the savings for a rainy day or wait until the bonus arrives.
Worst case scenario you lose your job the day after you buy the car. You then have to sell the car as you have no savings to pay your mortgage and cannot then get a loan. You’ll lose a large amount on the car instantly and have the hassle of trying to sell it quickly.
Worst case scenario you lose your job the day after you buy the car. You then have to sell the car as you have no savings to pay your mortgage and cannot then get a loan. You’ll lose a large amount on the car instantly and have the hassle of trying to sell it quickly.
Depends on how quickly/easily you can access cash if you need it.
If you clear out 100% of your savings on a car, what if the boiler blows or you lose your job?
Yes, you can sell the car, but that will take time and the bigger the hurry the more you will take a hit.
I would diversify; put a nice chunk of savings in the car - maybe £5k-£10k - and top up the rest with a loan.
That will leave you with a nice emergency fund (assuming the car won't clear you out) and a manageable payment.
Use the remainder of your theoretical £370 a month payment to divert into a savings account, then pay off loan when able.
If you clear out 100% of your savings on a car, what if the boiler blows or you lose your job?
Yes, you can sell the car, but that will take time and the bigger the hurry the more you will take a hit.
I would diversify; put a nice chunk of savings in the car - maybe £5k-£10k - and top up the rest with a loan.
That will leave you with a nice emergency fund (assuming the car won't clear you out) and a manageable payment.
Use the remainder of your theoretical £370 a month payment to divert into a savings account, then pay off loan when able.
I did the same a few years ago. Had quite a bit in savings but got a 15k loan to get myself back on the road after a back operation after an ordeal getting out of a Mercedes C250 lease (couldn’t drive a saloon for about 2 years after the op, cost me a lot of money to get out of it).
Car finance was about twice as much per month (shock horror), bank loan made more sense. Ended up needing the savings a few months later to fix a load of stuff in the house, glad I got the loan instead. Perhaps my situation was slightly different, but I don’t regret it. Interest rate on the loan was damn good too.
Car finance was about twice as much per month (shock horror), bank loan made more sense. Ended up needing the savings a few months later to fix a load of stuff in the house, glad I got the loan instead. Perhaps my situation was slightly different, but I don’t regret it. Interest rate on the loan was damn good too.
You know the state of your own finances and how paying out £370 a month will affect you, so that's a personal choice really.
I do think though that 5 years is a long time to finance any car I imagine most people who are car enhusiasts as on this forum would get bored of a car well before 5 years is up, assuming this is your sole vehicle too is a GT86 going to fit your needs in five years time?
I do think though that 5 years is a long time to finance any car I imagine most people who are car enhusiasts as on this forum would get bored of a car well before 5 years is up, assuming this is your sole vehicle too is a GT86 going to fit your needs in five years time?
Some great suggestions here.
I think one that stuck with me is “is the GT86 going to suit your needs in 5 years time?” Probably not, no.
Looking at an M140i and keeping my savings for an emergency buffer and use the loan to get the car and then throw my bonus at the loan in April, this way the car will always be worth more than the loan and end up with a smaller loan. Best of both worlds
I think one that stuck with me is “is the GT86 going to suit your needs in 5 years time?” Probably not, no.
Looking at an M140i and keeping my savings for an emergency buffer and use the loan to get the car and then throw my bonus at the loan in April, this way the car will always be worth more than the loan and end up with a smaller loan. Best of both worlds
If you did burn your savings on a car and ended up in a situation where you needed emergency cash then you could always take the loan out then.
I totally understand why you wouldn't want your savings used up though. What about a zero percent finance deal or PCP? Use some of your money as a big deposit perhaps.
I totally understand why you wouldn't want your savings used up though. What about a zero percent finance deal or PCP? Use some of your money as a big deposit perhaps.
I suppose with a PCP I would be locked in and less flexibility, you’re tied in but with a loan I can get out at anytime without such large amounts of negative equity.
There are no 0% deals on used cars (at least not this one) also the PCP option is 12% APR, far more than my loan.
I think loan then cash is a good balance.
There are no 0% deals on used cars (at least not this one) also the PCP option is 12% APR, far more than my loan.
I think loan then cash is a good balance.
OP, so I understand it, you have the money in the bank and you want to buy a car.
The car will depreciate - fact of life - you'll lose money on it however you pay for it.
You have the choice of borrowing money from somewhere and pay 5% or whatever for the privilege of earning 0.5% interest on that same cash kept in the bank.
The cost of finance is nowhere near what you'll lose on the car in depreciation, but it does look like burning cash just for the comfort of having numbers to look at in a bank account.
The car will depreciate - fact of life - you'll lose money on it however you pay for it.
You have the choice of borrowing money from somewhere and pay 5% or whatever for the privilege of earning 0.5% interest on that same cash kept in the bank.
The cost of finance is nowhere near what you'll lose on the car in depreciation, but it does look like burning cash just for the comfort of having numbers to look at in a bank account.
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