2% loan or use savings

[TallPollins]

I need to replace the family car. Both myself and my wife are public sector permanent employees. (gross 100k) We have 3 kids under 7. We have 10k in kids education fund with 420 being saved every month.

We have an additional 20k in savings. My credit union will allow me to borrow 20k at 2% if I deposit the 20k with them.

1. Should I just use the savings to buy the car and not bother with loan?
2. Or just borrow the 20k at the 2% and have my 20k back at the end of the 5 years. The 300 euro montly repayments will mean a serious tightening of the belt.
3. Use 10k savings and borrow 10k

Maybe I've answered my own question... But I'll open it to the floor anyway.

Thanks.

 

[dub_nerd]

Have you done your sums right? €300/mo for 5 years is only €18k. Your total repayments on €20k at 2% should be somewhere around €21-22k, more than €350/month. If it's going to be a serious belt tightener then maybe you need to spend your own money and save it back over a longer period. But as mentioned on another thread recently, some people prefer the psychological discipline of enforced repayments. Either way, at 2% the interest payments of <€2k are maybe not the sole determinant for you.

 

[Monbretia]

Half and half would be a good compromise, smaller monthly payments and still a good cushion of savings.

 

[Brendan Burgess]

This is bizarre.

You plan to deposit €20k at 0% so that you can borrow €20k at 2%? You won't have access to your savings as the credit union will not allow you to withdraw it.

Buy the car for cash. And with the €300k repayments build up your savings again.

In case of emergencies, you will have the kids' fund to access.

Do you have a mortgage? If so, and it's not on a tracker rate, you should pay the kids' fund against that. When the mortgage is paid off early, you will have more money for your kids' education that you would have at close to zero deposit rate.

Brendan

 

[PGF2016]

2. Or just borrow the 20k at the 2% and have my 20k back at the end of the 5 years. The 300 euro montly repayments will mean a serious tightening of the belt.

If the car means a serious tightening of the belt then maybe you should get a cheaper car.