Offset Savings To Car Loan

[StevenC]

Hi,

Myself and my partner purchased a car recently for 30k. We paid 15k up front and took a finance option to pay the rest over 5 years which we will end up apying 4k extra through interest but we both have 10k each to invest/save for at least 5years also to offset our savings against the interset owed. We were wondering whats the best way to go about investing the 20k? We were thinking of opening up two seperate Rabo accounts to gain 5% interest on both sums ok 10k. Any suggestions would be greatly appreciated

 

[GeneralZod]

15k over 5 years with 4k in interest payments implies an interest rate of 9.75% on the loan, which is a very poor rate for a loan of that size, but typical of bundled finance options. Figure obtained using KJ's Mortgage Calculator. Clearly the RaboDirect savings account rate of 4% (after DIRT is deducted) is way below this.

So your best option is probably to repay the loan from your savings as you're unlikely to get that return on any other investment without a substantial risk of losing money. Alternatively you could try refinancing the loan to a lower rate so that you have more chance of beating it in investment performance over your investment term.

For the small amounts involved repaying the loan is by far the safest option.