Unsecured Loans

[Ace]

I need some advice.

Taking a £10000 bank loan with Northern rock @ 5.7% over 3 years

with no protection costs approximately £10850

If I had £10,000 in a bank account with a good rate say 4.5%

which is better to use to fund a car, ie use my own money and pay back the same

amount as loan or just take out the loan and keep the money in the bank account.

please show any calculations

Pls move this to Investments after some replys

[OzzMosiz]

Definitely use your own money. Why? Cos the interest you make on your savings is eaten

by the interest on the loan (and more so!!).

Therefore use your savings, and put back into savings each month what it would cost to

service the loan if you had taken it out (and more if you can!)

£10872 total for the loan

BUT if you use your savings and re-add the £302 monthly loan equivilant back into your (assuming) empty

savings. It would build to £11616 after 3 years (assuming 4.5% compounded yearly).

Loan option = £11442 - 10872 = £570 up

Using Savings = £11616 - 10872 = £744 up

You're £174 better off using your savings over 3 years

Edited October 4, 2005 by OzzMosiz

[Timmy Manson]

I need some advice.

Taking a £10000 bank loan with Northern rock @ 5.7% over 3 years

with no protection costs approximately £10850

If I had £10,000 in a bank account with a good rate say 4.5%

which is better to use to fund a car, ie use my own money and pay back the same

amount as loan or just take out the loan and keep the money in the bank account.

please show any calculations

Pls move this to Investments after some replys

Why spend £10,000 when you can get a really good car these days for £3000. Depreciation is your biggest motoring cost, why not minimise it?

If you must flush approx £6,000 down the toilet over 3 years as your £10,000 car depreciates then it's marginally better to use your own money as you not only pay a higher interest rate on borrowed money but you also would have to pay tax on any interest you earn on your savings.....but oddly enough Gordon Brown doesn't give us tax relief on any interest we pay, funny that.

[Ace]

Definitely use your own money. Why? Cos the interest you make on your savings is eaten

by the interest on the loan (and more so!!).

Therefore use your savings, and put back into savings each month what it would cost to

service the loan if you had taken it out (and more if you can!)

Exactly what I was thinking, but after looking at the figures I have come out a couple of hundred pounds better

off by using bank loan and leaving my 10000 complete and earning interest. but I would really like to see some calculations from someone who understands a lot better than me.

[OzzMosiz]

Ace, see my modified post above.

[zorn]

Exactly what I was thinking, but after looking at the figures I have come out a couple of hundred pounds better

off by using bank loan and leaving my 10000 complete and earning interest. but I would really like to see some calculations from someone who understands a lot better than me.

You've probably forgotten to assume that you're saving the money you would otherwise have spent on loan repayments back into the bank account, building its value back up to £10,000 over the three years, and earning interest on the money.

[OzzMosiz]

You've probably forgotten to assume that you're saving the money you would otherwise have spent on loan repayments back into the bank account, building its value back up to £10,000 over the three years, and earning interest on the money.

Hence why he would be £174 (at 4.5%) better off over 3 years by resaving!

[Ace]

Hence why he would be £174 (at 4.5%) better off over 3 years by resaving!

At what interest rate would be break even? (FYI The car is an Honda S2000)

[OzzMosiz]

At what interest rate would be break even? (FYI The car is an Honda S2000)

Well if you were saving £302 (what would be monthly loan amount) into your savings account then

with no interest on savings account you would be even (in terms of the loan)

Edited October 4, 2005 by OzzMosiz

[Ace]

Hence why he would be £174 (at 4.5%) better off over 3 years by resaving!

So what future events would be beneficial for both cases ie interest rates rising etc

Loan argument:

Using Savings argument:

I was brought up to save and then buy (only what I could afford) taking out a loan feels bad but

I just want to make sure it makes financial sense.

[50:50]

At what interest rate would be break even? (FYI The car is an Honda S2000)

S2000 - Nice Car! Anyway, its always going to be cheaper to use your saved money but I've found that this isn't always practical. I'm saving up for a deposit to spend on a house (when the time is right) but I also pay a loan on my car. I realise this isnt the most efficiant way to save but if I put all my money into paying off my car I wouldn't have a deposit saved and so I would need a 100% mortgage if I decided to buy a house. Basically I have accepted that the extra intrest paid on the loan is a running cost of the car.

[Mr_Nice]

I cannot understand borrowing money to buy a car.

Before I STRed i had £23k in the bank and I bought an S2000 (04 model). I quickly realised that the car was fun but no where near worth 18 months work (based on me being able to save £1500 a month).

Fotunately I spanked it into the central resevervation of the M6. Woops. Put the insurance money back into the bank and bought 200sx turbo for 4k. Better rear wheel action anyway as the S2000 is gutless below 7k revs.

You know it makes sense.

[purplemonkey]

If you have the money, then its better to use it. debt interest rate will always be worst then debit interest, unless you secure a loan at 5% for 3 years and the BOE hikes up the base rate to at least 6-7% so your savings can start making real money. But thats the gamble, and if you project it, the savings are nominal, like a few hundred quid!

Good idea to reuse your monthly repayments as your new savings account, giving you a cool 10k again after 3years so you can do it again. If you're a saver this should be an easy discipline.

The only reason to go for a loan would be to have it before you can afford it so you can enjoy/use it. I recently advised and helped my mum buy a car, we had to loan 80% for it, but the heap she was driving around in was breaking down all the time. and by the time the loan is paid off for the car, she will be retired, so she really needs it now, the only option was to borrow.

Nice car choice by the way, watch your gas foot on roundabouts...

[undeservingrich]

Any income you receive from capital is taxed so even if you could borrow at the same rate as you earned you would be worse off by the tax paid

[Ace]

I cannot understand borrowing money to buy a car.

Before I STRed i had £23k in the bank and I bought an S2000 (04 model). I quickly realised that the car was fun but no where near worth 18 months work (based on me being able to save £1500 a month).

Fotunately I spanked it into the central resevervation of the M6. Woops. Put the insurance money back into the bank and bought 200sx turbo for 4k. Better rear wheel action anyway as the S2000 is gutless below 7k revs.

You know it makes sense.

Cheers, the only trouble with a 200sx Turbo is that you look like an 80's porn star when driving it

I have signed all the paper work for the loan and in my case it makes sense, most of the money is locked in ISA's and savings accounts with bonuses if nothing is withdrawn. Another point is that I have never had a loan before and I have been told that this affects my credit rating. But I can see how easy it is for some people to get into financial difficulties.

[teddyboy]

Depends what you want the money for.

I bought a car brand new for £8,400 (RENAULT CLIO). Got 2k for my car which left £6,400.

I then said to the seller "I will buy this car now, but I want 0% finance"

"It's not available on this car - just the ones where there is a sticker"

"I said fine, I'll go and get a Saxo then -they will offer me 0% finance"

"OK Ill see what I can do?"

"Whatever", I said.

He then came out and said OK but you need to put 50% down on pickup.

I didnt have the £3,200 so I borrowed £3,200 from Cahoot at 5.4% I think. I paid the garage.

The remaining £3,200 to Renault was 0% I then paid back cahoot at 5.4 on just £3,200.

Total cost for credit was £342. I will finish paying for it in 2 years (this October). Admittedly I am paying 2 people at the same time but I have made my money work for me. I could have went with Renault finance and on £6,400 with 14% A.P.R. it was something like £1,300 over 3 years.

MORAL OF THE STORY?

If you dont ask - you dont get.

If its to pay another debt off - Dont rob Peter to pay Paul if you have the cash.

Edited October 4, 2005 by teddyboy

[AgeingBabyBoomer]

Borrowing money is never a great idea - paying interest is just dead money.

Borrowing money to buy a car is truly a bad deal, as the depreciation on the car

is greater than the rate at which the debt is repaid.

Cars generally are the biggest money pit going, long ago I stopped drooling

over these lumps of tin, and reduced the car concept to three princiles:

i) cheap to run

ii) reliable

iii) cheap to buy.

A 5 or 6K diesel hatchback is suitable for 90% of most peoples daily

personal transport needs.

ABB

(Actually I drvie a van , as after several years of motoring realised that the

sofa in the back of most of my cars never got sat on - vans are even cheaper)

[Timmy Manson]

Tis after all your choice mate, but there are so many great 2nd hand cars out there, how about an MR2 T-bar turbo?

Just remember the £6,000 in depreciation that you will flush down the pan over 3 years on a £10k car, that £6000 must be hard earned?

I'm biased of course as I drive a 14 year of two seater mid engined beastie that looks the business and has ceased to depreciate, infact word is that due to them no longer being made rarity value is pushing the price of good examples upwards.

And in terms of it's hooning abilities, it's every bit as good as an S2000, a 350Z or an RX-8 ( I know as Iv'e had a play in all of these )

[bottletop]

Tis after all your choice mate, but there are so many great 2nd hand cars out there, how about an MR2 T-bar turbo?

Just remember the £6,000 in depreciation that you will flush down the pan over 3 years on a £10k car, that £6000 must be hard earned?

I'm biased of course as I drive a 14 year of two seater mid engined beastie that looks the business and has ceased to depreciate, infact word is that due to them no longer being made rarity value is pushing the price of good examples upwards.

And in terms of it's hooning abilities, it's every bit as good as an S2000, a 350Z or an RX-8 ( I know as Iv'e had a play in all of these )

Have to agree with that. My MR2 is now 11 years old, and still in fantastic condition with only 70k miles. Totally undeserved reputation as a hairdresser's car, but me and the mrs love it.

[Timmy Manson]

Have to agree with that. My MR2 is now 11 years old, and still in fantastic condition with only 70k miles. Totally undeserved reputation as a hairdresser's car, but me and the mrs love it.

Great fun aren't they, jusy squeezing in the last few days of summer when the lid can come off and the roads are nice and dry.

Mines a 91 and no signs of rust yet, still popping along on the original engine with 167k on the clock.

[Antsy]

Why spend £10,000 when you can get a really good car these days for £3000. Depreciation is your biggest motoring cost, why not minimise it?

We're about to do just this. Fiat Punto 2-3 years old and around 3.5-4k. Who needs performance when you can only get to about 30mph max in London, anyway? What sort of 3k car did you have in mind?