Car Purchase LTV

panthro · 22 Jun 2021 at 11:24

Just after some advice on this; normally I'll put some capital in and borrow the rest via a personal loan. I'm doing this with a car I'm due to collect on Friday, a Mercedes C43 Estate. Is there a "good" level of LTV when buying?
I was planning on putting down around 60% and borrowing the rest via a personal loan at 2.9%, but thought as interest rates are so low is it better to put down less and borrow more? The loan is only ~£500 to £700 over a 3 or 4 year term so I wouldn't pay for it outright.
I had a look online at a basic car depreciation calculator and it gave me the following numbers based on my inputs with a purchase price of £30,000:

Final vehicle value
£18,044
Est. Forecourt Price
£19,800
Total depreciation amount
£11,956 (39.9 percent)
Average monthly depreciation
£249
Ownership length
4 years

https://www.themoneycalculator.com/vehicle-finance/calculators/car-depreciation-calculator/

No idea how accurate this is (based on medium depreciation) but the monthly payment is more than the average monthly depreciation so I would expect some equity in the car on top of the initial deposit. Any advice would be useful, cheers!

rodenal · 22 Jun 2021 at 11:52

Genuinely doesn't sound like you need much advice here tbh, you know what you can afford and what at a guess you'll be left with at the end of the term in asset value vs what it will cost you to borrow.

You could always stick the reg of a c43 4 years older than the one you're buying into webuyanycar and check what it would be "worth" trade at the moment to check the calculated value to back up what you've already done.

Everything in between is personal preference / risk levels you're happy to take on or otherwise.

[TW]Fox · 22 Jun 2021 at 11:56

panthro said:
I was planning on putting down around 60% and borrowing the rest via a personal loan at 2.9%, but thought as interest rates are so low is it better to put down less and borrow more?

Why would it be? You're just increasing your bill for interest.

panthro · 22 Jun 2021 at 11:59

[TW]Fox said:
Why would it be? You're just increasing your bill for interest.

My current investments have more growth than the overall interest so I would prefer to keep my money in them. That's not to say things may change but I prefer this route.

[TW]Fox · 22 Jun 2021 at 12:40

panthro said:
My current investments have more growth than the overall interest so I would prefer to keep my money in them. That's not to say things may change but I prefer this route.

This is where these threads always get complicated isn't it.

If your money is in other investments then it isn't sitting as cash in the bank and presumably isn't really available for spending on a car no matter what the optimal LTV is.

If you've got the cash spare, the LTV should be as low as possible, surely?

If you're earning more from cash in the bank than you are from the interest on a bank loan then it sounds like you've got a magic money machine

lordrobs · 22 Jun 2021 at 12:46

[TW]Fox said:
This is where these threads always get complicated isn't it.

If your money is in other investments then it isn't sitting as cash in the bank and presumably isn't really available for spending on a car no matter what the optimal LTV is.

If you've got the cash spare, the LTV should be as low as possible, surely?

If you're earning more from cash in the bank than you are from the interest on a bank loan then it sounds like you've got a magic money machine

But most likely the money is currently cash in the bank but the OP is working out where best to put it ie, against the car to lower the loan or to boost their investments.

[TW]Fox · 22 Jun 2021 at 12:58

lordrobs said:
But most likely the money is currently cash in the bank but the OP is working out where best to put it ie, against the car to lower the loan or to boost their investments.

If the OP is a sufficiently shrewd enough investor that he can easily get risk free returns that exceed the interest on a high street bank loan then we should be asking him for financial opinion rather than the other way round.

Tenzo · 22 Jun 2021 at 13:23

Comes down to appetite for risk.

The deposit and loan cost are known.
Your investment returns are not.

Best case, you outperform the loan cost and make a net gain. Worst case, case the market drops and you lose your capital and have a loan to boot.

if you could guarantee a decent return over 4 years on a 25k investment, taking a loan would be preferable. (5k deposit and 25k loan for car)

Edit: basically what Fox said, we should be asking for OP investment strategy here

dlockers · 22 Jun 2021 at 13:53

If you are confident your investments are going to return above 2.9% then it isn't even a question really. LTV should be the absolute lowest it can be to get the 2.9% loan.

panthro · 22 Jun 2021 at 15:36

Thanks for the advice regarding LTV. I think it was more verification if I'm doing the right thing!
It's not some magic secret, it's actively managing my very modest portfolio of stocks and shares in a S&SISA, that is performing fairly well at the moment. No money tree, no financial advice to give. just keeping an eye on various sources and company statements.

Sirrel Squirrel · 22 Jun 2021 at 16:05

I'd personally leave the bulk of the money in the bank/invested and take out the large loan. You can always settle the loan early if you change your mind.

lordrobs · 22 Jun 2021 at 16:07

[TW]Fox said:
If the OP is a sufficiently shrewd enough investor that he can easily get risk free returns that exceed the interest on a high street bank loan then we should be asking him for financial opinion rather than the other way round.

Its 2021 Covid economy... we're all putting our life savings into Bitcoin, Beyond Meat and Tesla aren't we?! :confused:

dlockers · 22 Jun 2021 at 19:55

lordrobs said:
Its 2021 Covid economy... we're all putting our life savings into Bitcoin, Beyond Meat and Tesla aren't we?!

Pfft, how out of date are you?

GameStop, Nokia, AMC and BlackBerry!

a1ex2001 · 22 Jun 2021 at 21:35

[TW]Fox said:
This is where these threads always get complicated isn't it.

If your money is in other investments then it isn't sitting as cash in the bank and presumably isn't really available for spending on a car no matter what the optimal LTV is.

If you've got the cash spare, the LTV should be as low as possible, surely?

If you're earning more from cash in the bank than you are from the interest on a bank loan then it sounds like you've got a magic money machine

Could all be in a nutmeg or similar type instant access stocks and shares ISA that has done better than 2.9%, obviously past performance is no guarantee of future performance but you don’t need a huge risk appetite for this all to make sense.

mjt · 22 Jun 2021 at 21:46

Borrow 120% of value of car.
Invest.
Profit???

HangTime · 22 Jun 2021 at 22:13

Borrow as little as you need, S&S ISA is all well and good but it could collapse. Mine lost about 25-30% in Spring last year.

a1ex2001 · 23 Jun 2021 at 06:54

HangTime said:
Borrow as little as you need, S&S ISA is all well and good but it could collapse. Mine lost about 25-30% in Spring last year.

As everyone said it is all about appetite for risk, if you leave the money in your ISA history says you should make it back but obviously there are no guarantees!

Haggisman · 23 Jun 2021 at 11:48

a1ex2001 said:
Could all be in a nutmeg or similar type instant access stocks and shares ISA that has done better than 2.9%, obviously past performance is no guarantee of future performance but you don’t need a huge risk appetite for this all to make sense.

Seems a simple question really - would you be comfortable borrowing £X at 2.9% to invest it? If you're confident that the return will be more than 2.9% then why not just borrow as much as you can to invest?

Martynt74 · 23 Jun 2021 at 15:58

HangTime said:
Borrow as little as you need, S&S ISA is all well and good but it could collapse. Mine lost about 25-30% in Spring last year.

Yeah but where's it at now?

On £25k at 2.9% over 5 years or so you're at around £1800 in interest. I'd be surprised if £25k after 5 years hadn't made more than that.

a1ex2001 · 23 Jun 2021 at 16:06

Haggisman said:
Seems a simple question really - would you be comfortable borrowing £X at 2.9% to invest it? If you're confident that the return will be more than 2.9% then why not just borrow as much as you can to invest?

Risk appetite is the simple answer. I'm not prepared to take on debt to gamble on an investment although some people are, I would however think twice before emptying my stocks and share ISA to buy a car and might decide to take a balanced approach to risk and finance some of it. The OP's question is valid some are comfortable taking a financial risk some are not, this risks here are small as you are unlikely to make or loose a lot which ever way you go.