You don't need to be an 'investor' to invest in Singletrack: 6 days left: 95% of target - Find out more
London ULEZ expansion means replacing our 18yo diesel daily driver. At a likely cost of £370 a month to move it out of the garage that money might as well go to a replacement.
We have the money but are thinking of borrowing 2/3rd from our bank at 4.9% over 5yrs so that amount can stay invested / remain for an unseen emergency. The loan can be overpaid (using my sales commissions) or settled at any time.
As I type this it seems obvious not to pay the cost of the loan and just buy the vehicle outright, but I don’t feel at ease losing a large chunk of savings.
I’d welcome any thoughts / advice?
Edit: No, moving house isn’t an option.
Agree with your thought process, it's what I did the last two times (although at lower interest cost) but based on you're currently running around in an 18 y/o car, presumably you're not actually spending that much on it's replacement? £10k maybe s/h, or a bit more and going for a base Dacia or equivalent.
Spreading the cost of something can make it feel cheaper but it doesn't actually make it cheaper. I would buy it outright now, if an unforeseen emergency arises then you could borrow money to cover that expense.
the cheapest way is probably to buy it outright using savings, and then if you need the savings at some point in the future then borrow what you need at that point in time - assumign you will be able to borrow when needed (if you cant borrow when needed, then maybe its best borrowing now - just in case?)
But this approach will probably make you feel poorer - because you no longer have the savings sat in a bank account giving you that warm feeling.
The only exception to this approach is if you can make more money by investing the savings in something else than the interest you would be charged if you took out a loan - in this case its cheaper to take the loan and invest the savings - but this is usually pretty hard to do - you need to beat the market.
I don’t feel at ease losing a large chunk of savings
Why could you not borrow money IF you find you need to? Seems silly to pay the interest just in case.
As above. It comes down to do your savings earn more than the loan interest would cost (unlikely) and are you spending all of, or what you’re comfortable with of your savings leaving no safety net?
Could you borrow half and leave half as savings so you feel better? Obviously inflation is eroding your savings anyway so it’s cheaper to spend your money and borrow more later if required.
presumably you’re not actually spending that much on it’s replacement?
Well er, no. Because we can get a good deal we are treating ourselves to a new Sportage HEV then keeping it for at least all or 5 years of its 7yr warranty. After that period of time it and my 320d would go to one Electric car - because at least one of the kids will be driving.
Do the sums, work out how much more it's going to cost to borrow the money compared to what you get on your savings. Also think about how quickly you'll replenish your savings if you put away the equivalent of the loan payment every month.
Reverse loan it. Pay out of savings and put what would have been the monthlies back into savings.
Do the sums, work out how much more it’s going to cost to borrow the money compared to what you get on your savings. Also think about how quickly you’ll replenish your savings if you put away the equivalent of the loan payment every month.
Done - to see the term out would cost us £3k extra. And yes, the alternative is saving £450 a month for 51 months at the amount we'd borrow, not taking account of commission overpayments.
Everyones correct, it makes sense to buy it - despite it being a depreciating asset although it'll get used daily - and pay ourselves back. Ok, deep breath because...
because you no longer have the savings sat in a bank account giving you that warm feeling.
We do have a separate emergency fund remaining for any employment issues.
The other question I was going to ask is whether those savings really were your only security. Since it seems they aren't, the answer looks clear enough to me.
Well, one of the reasons its hard is that it obviously took a very long time and a lot of work to save the money in the first place.
To be fair, I'd looked at it as savings for our retirement so it hurts to lose it, but over Christmas I realised I was psychologically and naively well ahead of myself in retirement expectations/FIRE - I'm approaching 51. So I now have many more years of earnings to replace this with - unfortunately. On the plus side, just 23 months of mortgage left, all of it fixed at 1.35%!
Can you get a better deal from the car dealer if you take their finance with the car?
Then pay it off from your savings asap
£10k maybe s/h, or a bit more and going for a base Dacia or equivalent
What sunglasses for a Dacia?
What
sunglasseswatch for a Dacia?
FTFY! 🙂
The only exception to this approach is if you can make more money by investing the savings in something else than the interest you would be charged if you took out a loan – in this case its cheaper to take the loan and invest the savings – but this is usually pretty hard to do – you need to beat the market.
It depends on particular circumstances. For instance, if you save for your retirement and can trigger a 20%/40% tax relief, then suddenly the loan at 5% can be the best option as it then becomes relatively easy to match that with the free HMRC uplift to start with. The other question is if you cash in investments that haven't done so well recently to buy a car than you might be crystallising a loss or a poor performance (of late).
BTW - if I were looking to save money and drive in the ULEZ I wouldnt be buying a new Kia sportage HEV (have you see the price of those things!) , I'd buy something secondhand that still meets the ULEZ reqirements - just checked and our 67 plate diesel kuga is ULEZ compliant - I'd probably buy something like that for a fraction of the cost and depreciation of a new sportage.
Given you already have a separate emergency fund and your mortgage is paid off in 2 years I'd buy it out right now, then once mortgage is paid off you should be able to build up the savings pot quite quickly again.
The other question is if you cash in investments that haven’t done so well recently to buy a car than you might be crystallising a loss or a poor performance (of late).
Indeed. Equally, and especially if bout in the last 12 months or so they could stay in and perhaps see a decent rise over the next couple of years.
I'm thinking we should pay for it and then make regular payments back into a Vanguard ISA, in something like a Lifecycle or Sustainable Strategy fund.
Not the same I know, but I wish I'd spent my savings on a new van in 2019, before the prices went daft.
I’d buy something secondhand that still meets the ULEZ reqirements – just checked and our 67 plate diesel kuga is ULEZ compliant – I’d probably buy something like that for a fraction of the cost and depreciation of a new sportage.
A "fraction", are you sure?
A “fraction”, are you sure?
9/4 is a fraction 🙂
I had an answer prepared and then later posts negated a point I was going to make, but I'll make it anyway.
Financially the right answer is to use savings rather than pay interest, but if those savings are your rainy day fund then IMHO using them on the basis you can get a loan later if needed is not necessarily the right answer. Firstly, the loan is likely to be more expensive in the current trend of increasing interest rates - that may change again of course. Second, if the rain is unemployment flavoured you might then struggle to get the same loan amount / rate as your affordability will be substantially different.
Your rainy day fund should be a ground zero ringfenced amount, after that is secure then the rest is correct as stated. If you'd have to go below that safety net then a loan would (again IMHO) be the right option.
Also, if you're two turns (2x3 years) away from dropping to one car, is a lease option viable? Again do the sums but look at overall cost including how much the one you're thinking of buying will really be worth in 5-7 year's time.
A “fraction”, are you sure?
A new kia sportage HEV is circa £40k depending on spec
A 67ish plate diesel kuga is 15k-18k - sounds like a fraction to me - around 1/2
BTW – if I were looking to save money and drive in the ULEZ I wouldnt be buying a new Kia sportage HEV (have you see the price of those things!) , I’d buy something secondhand that still meets the ULEZ reqirements – just checked and our 67 plate diesel kuga is ULEZ compliant – I’d probably buy something like that for a fraction of the cost and depreciation of a new sportage.
Yup, exactly what we did. 5k astra estate (2015) .ULEZ compliant. Our first car for a while actually (been driving a 21 year old campervan into bristol once a week!
A new kia sportage HEV is circa £40k depending on spec
We are getting a "3" spec with tow bar for just sub £30k maybe less if the Kuga sells well in the classifieds as a 4WD tow bar already bike car 😉 Re other cars, we could but Mrs K has never been blessed with any other than a 5yo car with my name on at least, she chose this one as the one she wants, we can afford it and she deserves it.
we could but Mrs K has never been blessed with any other than a 5yo car with my name on at least, she chose this one as the one she wants, we can afford it and she deserves it.
yep, completely understandable and as good a reason as any for wanting what you want.
If you're happy with a 5+ year old car, why not buy a 5-year old car now?
If at 5 years you'll be looking to get rid, consider leasing?
A “fraction”, are you sure?
we spent £4k on a 5 year old zafira tourer diesel that is ULEZ compliant, and does 70mpg on a run. If you want nice things, its fine, but its man-maths at its finest
What about part finance, part buy outright?
What about part finance, part buy outright?
That was in my first post, part bank loan or part PCP (with a high deposit) both attract additional interest.
Getting finance and not touching the emergency savings is a good approach. 2020 has shown us that the unexpected can happen and I think the economy will continued to have a very rough ride in the next 1-3 years.
A new kia sportage HEV is circa £40k depending on spec
A 67ish plate diesel kuga is 15k-18k – sounds like a fraction to me – around 1/2
Nearly half isn't a "fraction" in everyday speech FFS.
but its man-maths at its finest
You say that like it is a bad thing!
Nearly half isn’t a “fraction” in everyday speech FFS.
is in my everyday speech - must be different in the borders - but whatevs, no harm meant, the other posters above have given examples of ULEZ compliant cars that would hopefully fit your definition of fractions. I was only trying to show that one doesnt need an expensive hybrid/elec vehicle to be ULEZ compliant
We just decided to get rid of both of our current cars and buy 2 electric cars. Could have paid for both with savings but I opted to do exactly what the op mentioned and get a 4.9% loan over 5 years and keep my money in an ISA. I feel happier having the savings, and our monthly saving in fuel costs pretty much pays for the loan. Running both cars on an EV tariff will be about £40 per month vs more like £400 before if you include tax.