car loan vs savings

[mrstrickland]

Hi all, would appreciate some advice please.
I have managed to squirrel away 30k in savings over the last few years, a lot of which I managed to save when I was working a lot of extra hours during covid (NHS worker). This is a hell of a lot of money for me and I treat it very much like an untouchable pot of money 😂

Our car is on the verge of giving up, so we obviously need to buy another. Nothing fancy, just a decent family car with a budget of around 13k. I can't decide whether to pay a certain percentage from savings and some from a loan (over say 3 years) or just fund it entirely from savings? My worry is that this amount is very much not replaceable, it was earned through a lot of hard work but unlikely to have that opportunity again.

I am awful with figures/maths/money so am really seeking advice from people who know what they are doing!

Thanks all

I have never bought a car with a loan unless it was interest free. Did get that twice but only after haggling to see would the price reduce if we just paid. So what you need to work out is how much interest the loan is and how much interest you are getting on your 30k if the interest rate for the loan is higher I would just pay the money for the car. The money you would have spent on repaying the loan should then be paid monthly to the savings pot so your savings will increase again.

If you look at it this way you would be practically borrowing the money from yourself!

If you do borrow from your savings, I would suggest repaying it with the payments you would otherwise have used on the loan.

@Chewbecca yes, great idea! thanks

It’s a question of interest rates. Say you’re getting 5% return on your savings and the rate on the car loan is 9.5% (quite typical currently), then just take from savings.

@Chewbecca nailed it.

As it’s going to be less than half your savings pot it’s a no brainer to me to use them instead of wasting money on a high interest rate! As pp said work out what the loan payments would be and set up a standing order back into your savings for that amount each month.

Paying interest on car finance at a rate higher than your savings are earning makes no sense. It’s just costing you more in the long run.

I agree with @Chewbecca. ‘Borrow’ the money from yourself, then gradually pay yourself back.

The maths say use the savings. However everyone should have a few months income in accesible savings as an emergecy fund. Make sure you keep some available

You say you won't be able to replenish your savings? What money are you planning to use to pay the loan repayments then? Doesn't make any sense.

Take £13k from your savings and then pay yourself back

Pay from your savings, and then pay yourself back. You’ll save on interest payments then.

It depends on what you're doing with the money. Savings are literally worthless, unless you do something with the money.

Invest?

Do you need a 13k car?

If you have good credit, loans (not pcp) are pretty cheap right now.

Of you can afford the repayments, and have good credit, I would take a loan for the car, and use the 30k for something else.

You say ‘your’ savings but ‘our’ car. So questions: Is this a husband or a partner? Do you share finances? How strong is your relationship? Who will be using the car the most?
If you have a wonderful relationship where you share finances. I would go with using your savings for your car every time. As suggested by a pp do try to replenish your savings.

There is a third option which is not widely spoken about!

however WARNING choose this method if you can manage your finance -saving and debt well!

Its 2 year interest free credit card! Most car companies accept cards (however most of them might not take full payment). This way percentage of your saving will still earn interest ! and you can still put some money in this pot every month !

One can actually transfer money from credit to a normal bank account for extra fees (in case car company doesn't accept credit cards!) but the charges wary from as to card!
Hope it helps!