With the new tax year now underway, there was a plethora of financial matters to discuss today. During his appearance on Nihal Arthanayake’s show on BBC Radio 5 Live, Martin Lewis was on hand to answer a wealth of questions from members of the public.
William, calling from London, was among those to get in touch today.
He explained he had come into “a bit” of money after his step-father had sadly passed away.
The caller asked: “We do need a new car, any my question was whether we should get it on finance or buy outright and do something else with the money?”
Responding, financial journalist and campaigner Martin pointed out it is not possible to “do much” with the money “in safety” at the moment – due to the interest rates on the savings market currently.
“You’re going to earn 0.5 percent interest at best if you save the money,” he said.
“You could of course take a risk with the money, but that wouldn’t really help you.
“So the advantage of keeping the money and getting some borrowing doesn’t really help that much.”
Martin went on to explain: “What we could say is, if you were able to get a zero-percent finance deal, then technically it would be worth keeping the money in your bank account, saving it at the highest interest rate you got.
“It’s what called stoozing, and you’re effectively earning a bit of money on the money that the car finance company is lending you.”
However, Martin pointed out it may be the listener can’t get a zero-percent deal, and added on that there are other complicated deals.
He added: “Overwhelmingly, my instinct is if you’ve got the cash, use the cash,” adding that this could potentially enable a person to negotiate a better deal on the car purchase outright.
Grateful for Martin’s expertise, William went on to ask about mortgages.
“My wife has still got some mortgage outstanding on her house – the house, it was in her name,” he said.
“Might it be an idea to help pay that off and get the car on finance?”
Martin replied: “You have to contrast the rates.
“It’s very simple. Paying money off the mortgage is equivalent to saving at the mortgage rate so if you’ve got a three percent mortgage and you’re allowed to overpay it without penalty, that is better than any saving account on the market – and also that’s secured.”
However, Martin pointed out William would also need to look at the cost of the car finance to see which would be a better option.
He added: “Certainly, if she’s got a high rate mortgage – if the mortgage is five or six percent, then I’d definitely look at clearing the mortgage.
“If it’s a cheap mortgage of one or two percent, I’d probably just carry on as you are and not get a car loan, as that would likely be more expensive.”
The Ask Martin Lewis podcast is available to listen to on the BBC Radio 5 Live website.