Buying a car - loan or pay outright?

[SurreyGuy]

I need some sensible (non-abusive) advice please.

I'm looking to change my car soon and I'm looking to spend about �3K.

Now, would I be better taking out a loan (there seem to be lots of good deals around) or paying for the car outright out of some money I have kept aside for a rainy day?

T.I.A.

[Im a BusyBee]

You need to consider the interest rate charged on the loan against what interest you will get on your money invested. If it is a 0% finance deal then you will be better off to leave your money where it is. if you give interest rates and terms it can quickly be worked out for you.

[loobie]

I can't really give advise but I got a loan of �3000 to buy my car last year. Got it from Nationwide and I pay �91 a month for three years. So I guess it depends whether you would prefer to lose the money you have saved or pay a monthly bill. Personally if it was me, I would probably use the money cause I could do without that montly bill!!!!

[Ethel]

And also, see if you can haggle for a large discount for cash.

Your �3k is probably earning you 5% maximum. If you are a tax payer, you will be paying 20% tax on interest, unless it is an ISA.

So a finance deal would need very low interest rates. A cash discount would probably be a better saving for you.

I would not normally recommend credit cards, but there are plenty out there offering 0% for 9 months or a year. If you can get one, do. Save it for a rainy day emergency so you don't have to worry about spending your �3k.

You should be aware that many dealers offering 0% finance have already hiked the price of the car up to get the money back.

As always, shop around.

[SurreyGuy]

Thanks guys.

With regards to the "loan thing", I was actually referring to a bank/building society "any purpose" loan so as I can go and then buy a car privately as opposed to buying a car from a dealer on finance.

[Ethel]

The same applies, SurreyGuy.

The interest rates would need to be very low and most dealers do cash discounts.

[Miss Zippy]

If �3,000 is all the money you have in cash savings, then I'd caution against using all of it. I'd use, say, �2,000 of it and put the other �1,000 on a 0% interest credit card as Ethel sigguests and make sure you pay it off within the 0% interest period.

[SurreyGuy]

Cheers again folks.

Miss Zippy, I'll have more than �3000 in my "rainy day" pot, but I'm looking to spend a maximum of �3000 on a car. If that means �1500 of my money + �1500 loan or some other combination, then that'd be fine.