how would you pay for this work?

[florapalmer]

We need to have some work done in the garden, and have 2 options to pay for it:

1. pay out of savings (currently in Premium Bonds - it would use about 25% of our rainy day savings, we have already used a fair amount this year for the reason I've mentioned below)

1. get a loan - if I take a loan over 4 or 5 years and consolidate my existing car loan into it, we can pay the same amount per month as I'm paying now just for the car, and the rate would, I think, be about 3%

For some reason I HATE depleting savings, although I know this prob makes the most sense in terms of interest. DH is self employed and we have taken a real financial knock this year due to covid so it's highlighted even more to me how important it is to try and have a decent cushion.

Just interested really in others views about using savings vs finance for major(ish) expenditure, I can't work out whether I'm being over cautious in terms of wanting to use finance when I could use cash.

It doesn't help you now but I feel the same way with using savings .
So I set up a "something is broken account" and pay £50 a month in there to cover car and minor home maintenance ( eg if I need a new washing machine or the drains get blocked ).
And don't count this as savings in my head if that makes sense.

In your case , I would use the savings but get the loan priced up and pay what would be the monthly installment back into the savings each month .
Therefore the interest you would have paid on the loan gets added to your savings

If it's only going to use a quarter of your rainy day savings, I'd use that, you'll still have plenty left and you can replenish the money by using the money that would otherwise be used for the loan repayments.

It makes no sense to pay interest on loans etc when you have the money sitting there doing nothing.

Depends how much one quarter of your savings is. If you have £4k in savings I'd take the loan. If you have £100k I'd be more tempted.

I'd also ask if you are thinking of moving soon in which case is it worth spending lots of money on the garden.

Surely that's the point of savings? You save up money to use it for home improvements, a new car etc? And then once you've spent the money you work on building it up again. I'd definitely make sure you're left with a comfortable amount of rainy day savings (to be able to live off it for 6 months would be ideal). But, apart from borrowing on a mortgage, I think the best way to look at things is that if you can't afford to buy it without the help of a loan, then you can't afford it.

I’ll personally use the savings as it’s only 25% of it. I think that’s really the point of savings so you have something to spend when you need it.
We also have a similar account to previous poster that we named ‘home improvement account’ that we put £75 a month into it apart from the regular savings so we have something to spend in situations like the one you described or any home emergencies.

What's your credit score like/access to credit?

I agree that you should loan it to yourself from your rainy day money and pay back in monthly installments, especially if you will still have some cash and access to credit if you needed it for an emergency.

Martin lewis of MSE always advises using savings /emergency fund first before taking on debt

Your savings will be getting less interest than the cost of the loan

How essential is the work ?

Arguably you can use. Quarter of the savings and add what you’d be spending on the interest to thr loan back in to build it back up. You’d be mad to pay three percent interest. When you can add that money to your savings.

I would get an interest free credit card and put as much as I could on that. Then pay that up over the free interest time period, from your savings.

In my head (similar to other posters) there’s the Rainy Day Job Loss fund, and there’s the Saving For Stuff fund. I wouldn’t want my Rainy Day Job Loss fund to drop below a certain level, but I’d be fine with loaning myself 25% of it and paying it back to myself. You become your own bank, basically.

I definitely wouldn’t consolidate a loan over 4-5 years. You should be trying to pay debt back ASAP not extend the time you spend paying for it, especially not for a car which is a depreciating asset. If you’re concerned about rocky financial stuff in future you don’t want a 4 year plus loan around your neck.

We carry some debt whilst we have stuff in savings but it’s 0% credit card debt. If I can’t get a good switch when the deal runs out we’ll repay it, until then it makes sense to keep it in savings.

Thanks all! To answer some questions...its probably a 'want' rather than need to get the work done, we've lived here a few years and the garden is ok-ish, but the drainage is terrible, the slabs are cheap and porous and badly laid so get dirty really easily, the patio is in the wrong place to get any sun etc etc. Its basically unusable unless it's been dry and sunny for days as the grass gets so waterlogged. We knew we would need to do it when we moved in so have just decided to bite the bullet this summer as we won't be going anywhere!

I think the reason I don't want to use savings is because it'll take so long to build back up, I think I've become weirdly attached to being able to look at the balance and be comforted it's there, I don't really add much to it as I've had it as rainy day money for years from when I earned a LOT more, and I don't like taking money out. We stretched ourselves to buy a bigger house a few years ago and decorating, furniture etc used a chunk then, plus a deposit on my car. If I use some of it for this it will leave me with about 6 months salary in savings which logically I know is fine but emotionally doesn't feel like enough! I realise this is a totally first world problem btw, so I apologise to anyone who thinks I'm stressing about nothing, you're absolutely right.

I also have a balance on an interest free CC already which I'm paying off, but I don't think a CC will work for this as the chap wants paid by bank transfer. My credit score is excellent so I've always been able to access low cost finance.

Irrelevant whether you need or want it.

If you take out a loan froma bank it will cost you more. If you loan yourself the money it will cost you less and you will still have the option of taking a loan if you have an emergency.

There's still time for him to get a covid bounce back loan for his business - no interest or repayments for the first year and then low interest thereafter. It would give him some comfort in case the business didn't recover. If he needs to spend it, then OK, but if business picks up, he could just fully repay it before interest/repayments start.

If he takes a loan to protect (and maybe grow) his business, you'll feel happier about spending some of your savings and depleting your emergency funds.

I think the reason I don't want to use savings is because it'll take so long to build back up, I think I've become weirdly attached to being able to look at the balance and be comforted it's there, I don't really add much to it as I've had it as rainy day money for years from when I earned a LOT more, and I don't like taking money out.

But if you take out a loan, consolidating your car finance, you’ll be committed for over 4 years to a chunky payment that, if you lost your job, you’d need to pay savings to service. That would deplete your savings faster, and if you couldn’t pay the loan would wreck your credit rating.

Whereas if you loan yourself the money from the savings, committing to paying back a certain amount per month, then if you lost your job you’d just stop paying into savings, and they’d last as long as they lasted but you’d also not have a hefty debt payment to worry about.

I do know what you mean, we’re in a similar position, but either a) you can afford the work or b) you would need to get into debt for it. Being able to afford it and deliberately getting into debt is the worst of all worlds. If psychologically you won’t deplete the savings by this amount, you can’t afford it...

As an aside, it sounds like you have a lot of credit commitments anyway (car finance, outstanding 0% credit card etc) so I really would worry if you keep incrementally notching up extra payments that eventually you’ll realise it’s become a big burden.

Take an interest free loan from your own savings and pay it back in the same manner you'd pay a "consumer loan"

Now is the time to be avoiding as much consumer debt as possible. It's such a weight to worry about.

The only other way I'd take on debt right now would be a super long interest free credit card I'd work out the debt/divided by the amount of interest free months and make sure I paid that as a minimum every month PLUS throwing money at the debt every chance I got to pay it off as soon as possible.

Can you ask to pay for the materials on your 0% credit card?