€30 windfall. Reduce mortgage or buy car?

Dinarius

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We have a 20 year, €300k mortgage.

We have just received a €30k windfall from a relative at a time when we are thinking of trading up our car for a newer model.

Our intention is to buy a 3/4 year old car and keep it for 4/5 years.

Does it make better sense to use the windfall to purchase the car, or should we take out a 4/5 year car loan and put the €30k towards our mortgage?

Obviously, the car loan route would entail monthly outgoings that we don't currently have (albeit offset a little bit by our reduced mortgage repayments). On the other hand, if we use the cash to buy a car, wouldn't we, in a sense, be paying for it over 20 years?

I'd like to know what the most financially expedient route is, regardless of the pain involved.

TIA.

Dinarius.
 
So when you were thinking of trading up the car before you knew of the windfall gain, you would have intended to to take out a loan.

If you buy the new car with some/all of this windfall gain and accelerate you mortgage repayments by the amount that you would have been paying into the car loan for the period that you would have taken the car loan for.

Paying in the money against a 4% loan as opposed to an 8% loan will give you more off the principal and less to the financial institution
 
Buy the cheapest car that you can, for cash, and put the rest of the money into the mortgage. Make sure that you do not reduce the monthly mortgage payment (if anything, increase it). It would make a big difference to how soon you clear the mortgage.

A car is a depreciating asset, and borrowing money when you can pay cash for it is daft.
 
Yes, you should be able to get a decent 3/4 year old car for €10-15K. Pay in cash & put the rest against the mortgage (and maybe spend a few hundred euro on a "treat").
 
If you buy the new car with some/all of this windfall gain and accelerate you mortgage repayments by the amount that you would have been paying into the car loan for the period that you would have taken the car loan for.

Paying in the money against a 4% loan as opposed to an 8% loan will give you more off the principal and less to the financial institution

Makes perfect sense when seen written down. ;)

Many thanks.

D.
 
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