Reply With QuoteBetter off paying the £5k.
Interest of the loan >> interest of savings account.
This might be an easy question for some but money and investments isn't my thing and so I can't quite get my head around the best option.
My son is in the process of selling his car.....priorities have changed recently and is thinking to the future now he has a steady girlfriend. He is looking to save to be able to get a mortgage in about 3 years time.
He stands to get back about £13k from the sale of his car. He will save circa £350 per month with not having to pay his car loan.
He also needs another vehicle and so is looking to spend around £5000 for a replacement.
The question is.....is he financially better off to place the whole £13k in a savings account and then take out a £5000 loan for the purchase of the car (over 3 years) OR take £5000 from the £13k he has and stick the remainding £8K in to a savings account?
A 3 year £5k car loan will cost approx £150 pcm, he would then put what's left of his original car loan (£200) also in to the savings......what's best guys I'm struggling!!
Obviously if he paid for his car outright he could place the whole £350 in to his savings.
FFF
Last edited by Franky Four Fingers; 10th December 2018 at 22:40.
Better off paying the £5k.
Interest of the loan >> interest of savings account.
'Against stupidity, the gods themselves struggle in vain' - Schiller.
With a bit of effort he could likely beat the interest on the loan by saving £15k in a variety of regular savers and interest paying current accounts, have you/him ever read up on LISAs if his intention is to buy a house in near future ?
Is he disciplined enough to stick £350 aside each month or would a loan act as a bit of a forced savings account.
Has he looked in to leasing ?
Cars are peanuts these days if you want ?
Yes he's a good saver and as tights as a ducks arseOriginally Posted by -Ally-
Yes have heard a little about the LISAs but thought they were a waste of time...?
Hes only looking for a car which is 5k or less so that's a non starter.....talking 10-12 plate Fiestas etc.
I did the maths and didn't think there was much in it but I could well be wrong.
Quite specific but certainly not a waste of time if the circumstance suit.
https://www.moneysavingexpert.com/sa...lifetime-isas/
Just been on ITV tonight 8pm Martin Lewis money programme specifically about first time buyers and options, prob find it on catch up
Thanks for that...may be an option for him!
So , for two years he could get a Fiat 500 for £800 ish down and £150 a month .
And there s bettr deals to be had .
Just an option btw
Modern mortgages do need a substantial deposit so far play to your lad for knuckling down for 3 years, you say £5k for a car but wise shopping will get you a decent car for far less, I have had my Audi A3 for getting on 3 years now and put over 30k on the clock, I paid £2250 so good reliable cars are out there for around £2k..
Another option, pinch of salt needed! get him to put his name on the list of all local AD's for the latest Rolex GMT or Daytona, never know he might get one in the next 3 years and can double his money!!
Hes in the trade and yeh I think he will probably shop around. Regarding the watch.....he's got a Black Rolex GMT he bought new in his bedroom which he wears now and then and I think that will also go in the pot
Lifetime ISA info on MSE: https://www.moneysavingexpert.com/sa...lp-to-buy-ISA/ - free money as far as I can see.
Regarding the car purchase and buying outright vs. a loan of some sort, will a loan have any material effect on his credit score, that may in turn affect his mortgage application?
Last edited by hogthrob; 11th December 2018 at 07:52.
1) Buy outright for a 2-5k. Something bulletproof. If he is in the trade, then all the better for maintaining it.
2) Depending on age, he could get a cheap lease deal instead. This will help with building his credit profile too.
3) He should get a credit card for general expenses and use it and pay it off each month to further build his credit score. Look at cashback and rewards based cards. This will help with mortgages.
4) The sweet spot was 25% LTV so does he have a chance of getting to that for the mortgage. Rates are significantly better than 10% LTV, but be realistic.
5) Identify the target type of home and price then have a plan to get it. E.g. £20k deposit needed = save for 2 years. Share the burden with the girlfriend?
https://www.selectcarleasing.co.uk/c...1665-2019.html
48 months
10000 miles pa
£1350 deposit
£150 per month.
Worth considering as a cheaper car will often need more spending over its lifetime.
If he doesn't care about the car' street cred and just want A to B commuter,...stick with simple japanese car like Honda Jazz or Toyota Yaris...they are proven reliable and very cheap to run cars. £2k will get him a clean example with FSH... There isn't that much to go wrong...so he'll be saving comparing to leasing or loan big time .
Go get a Tesla or Porsche and spank all the money. If he got a property by saving instead he'd eventually get married, then divorced and his now ex-wife would take the property anyway so better off having some fun whilst he can.*
*This may not be sound advice
He could get a car that would last 3 years for less than £1k.
It might not be 'cool' or quick but it would save him an extra £4k. At the end of three years the £5k car will be worth nothing anyway.
To be honest if he is in the motor trade then I would just pick up the cheapest car with the longest mot and run that until it goes bang, £600 will get you a half decent Yaris costing buttons to run. Any problems you scrap it for £100 and get another snotter.
Either that or lease something new for about 5k total over the next 3 years, boost credit and again if he's in the trade he will probably get something better for that money. Fixed cost, any problems get the lease company to deal with it.
But buying a £5k car which will be out of Warranty but expensive enough to require you to keep it on the road is riskier than both those options in my eyes.
There’s some good advice about buying a cheap shed and running it into the ground and I saw fff said his sons tight ;-) but some times folk need a bit more than the bare minimum to help encourage them to stick to the new budget / saving plan.
If he’s in the trade and not doing silly miles then loads of interesting bigger petrol engined interesting motors out there for 5k.
Or lease wises a new Honda Civic for four years £1170 down £195pm 47 months.
https://www.whatcar.com/car-leasing/...ract_length=48
Astra elite 1.6T £950 down £160 pm 47 months
https://www.whatcar.com/car-leasing/...ract_length=48
Leasing for > warranty period is generally a no-no. E.g. the lease car with 3 year warranty has the turbo go after 40 months of a 48 month lease? Not a good position to be in. A main benefit of leasing is not having large additional unplanned costs.
I think that if the OPs son is in the motor trade, then buying looks a better option with some of the suggestions above being good calls.
Thanks for that , it's a good point and something I didn't consider until the today.
Having monthly outgoings will clearly affect the amount he can borrow also so it looks like a LISa is best and pay the car off in full
There's some good points raised on here, especially regarding buying an old sh***er and running it in to the ground. Extra 3k in the savings has to be the best advise.....not that he'll listen to me.
The fact he is in the trade makes the buying an old banger even more compelling. He’ll get a wider choice, a lower price, knows the weak points to watch out for and can fix what goes wrong.
'Against stupidity, the gods themselves struggle in vain' - Schiller.
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