Head or heart

I have recently been stuffing my rainy day fund with the result of my reduced commuting costs associated with working from home for 2 years.
I have also been re-evaluating my current choice of motor vehicle. I now no-longer need a commute friendly vehicle and can get something more suited to the social, domestic and pleasure use cases.
Long story short, I am about to make a new vehicle purchase.
I have just about the right amount of cash saved up and with a trade-in can afford to pay for the vehicle outright, but then that wipes out the savings pot and makes me feel just as poor as I used to be.
I am thinking of using some cheap debt to make at least some of the purchase price. Specifically a 0% purchases credit card.
This doesn’t make the vehicle any cheaper to buy, and doesn’t give me any more money than I already have. But it would allow me to defer paying for it by up to about 23 months. (Notwithstanding the minimum monthly payments)
So my question is, should I do it or not?
It sounds like an obvious choice. I can then leave my cash in my savings account for a few months more and make some more interest on it. Borrow at a lower interest rate than I can save at, and difference is profit, right?
Or am I missing a trick? Is there a catch?
I realise the danger is that I will forget that the money is committed and think that I have more funds available than I really do and over spend and get into some sort of debt. But I am fairly well on top of my cash flow. Thanks Nova.
Realistically it would only be an unforeseen event (boiler failure needs replacing) that would catch me out, and if I had paid the vehicle off in full at the point of purchase then I would be turning to some sort of temporary debt to cover it anyway. This way I would have cash more readily available.
I have the option of dividing the full credit limit, say £10k, by the 23 month interest free period and setting a monthly payment of that amount. Set and forget, in about 2 years time the card will be paid off in full. But that feels like I am not quite maximising the potential of the 0%. Should I instead, only make the minimum required monthly card repayments, about 2.5% of the diminishing balance each month, which would result in about half the card being paid off in the 2 years, leaving the other half as a single final payment. I know I need to be careful that I don’t forget to do this and accidently accrue interest (I guess that’s how they get you). But that should leave me with about £5k of temporarily surplus cash sitting around for 23 months. I know it’s not really a huge amount in the grand scheme of things and 2 years is not long in savings or investment terms, but surely there is something positive I could do with this rather than just sitting on it and not spending it.
Am I massively over thinking this and for the sake of a few hundred quid in potential interest, I should just pay for the vehicle with the money I already have, after all that’s what it’s there for anyway and be done with it.
What would any of you do?

Hi John, got a few questions to clarify some stuff (not sure if I got the whole thing right):

  • Do you have an emergency saved up or would you be using this emergency fund for the car purchase?
  • What interest rate do you have on a savings account in case you leave the money in the savings account and use the 0% interest credit card?

Personally, I would always leave an emergency fund untouched unless for real emergency, but I’m not sure if you consider purchasing the car as an emergency.

If the money is not coming from the EF, I would just pay for the vehicle and be done with it, then replenish that extra fund again. The interest rates for savings accounts for me are too small (the best one I know of is Chase at 1.5%, and most banks offer less than 1% AER) to really bother with missing out on the interest.

If purchasing the car outright leaves me with 0 savings for emergency, then I would take the 0% interest credit card and pay the car over the next 2 yrs.

I just psychologically hate knowing that I have bad debt (even if it’s 0% interest). My mum went through that phase where she kept using 0% interest cards thinking it was no harm, then a few years later she could barely afford the minimum monthly payment and ended up paying only the interest for years on end.

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Really good questions there, thanks Angela, it’s really making me think about all the aspects of this.

I have a separate emergency fund, split between cash and some shares and NS&I Premium Bonds. So this is genuinely an affordable and pre planned purchase being made with funds that are already in the bank and put aside for this purpose.

I make all my monthly bills and variable spending each month on a cashback credit card and I repay this in full every month. (When it’s due, one month after the purchase date, there is always a residue balance on payoff day as there is always constantly new spend going on each month)
I use 3 different cards for these normal monthly domestic purchases. Primarily I use my AMEX card, this gives me 1% cashback on everything I buy. If AMEX is not accepted then I have a Barclaycard card that gives 0.5% cashback that is my fallback option. Thirdly I have a Amazon Credit card that is used exclusively for Amazon purchases, I would ordinarily use my AMEX, but there was an attractive introductory offer that made taking the card out worthwhile. Once that expires I will revert to using the AMEX.
I have never paid a penny in interest to any credit card company ever. I always repay the statement amount in full every month.
Using cashback credit cards in this way nets me about
I know I have the restraint and foresight to avoid any credit card interest.
For completeness, the 0% card is a new MBNA card that arrived this week. It gives 23 months at 0% for purchases made within 60 days and came with a credit limit of £10,200. It also offers 0% on balance transfers and current account transfers for a modest fee, about 3 or 4 percent if I remember correctly, but I am not interested or tempted by that.

I have enough money sat as cash right now to pay for the whole thing. I have just collated this cash from a few different repositories into one place and it’s currently residing in a Chip account getting 1%.
Which reminds me I need to open a Chase account and get 1.5%.

Even if I leave the cash in the Chip account and get nothing better than 1%. Then that’s still at least £100 in my favour after the 2 years. More if I do use Chase. Potentially even more again if I am so bold as to risk venturing into stocks/shares/ETFs, though I would probably avoid that and just be happy that I had scored risk-free couple of hundred quid. That’s probably enough to cover the cost of the vehicle excuse duty (tax disc) each year.

Meanwhile my normal monthly saving amount can start to independently refill my car/rainy day fund.

Some might say it’s not worth the hassle for the return and they would rather not have to worry about it. But saving money doesn’t feel like a hassle to me, I actively monitor and manage (with the assistance of Cash Coach) my finances every month to keep on top of it. I don’t earn enough not to! As someone famously once said, every little helps…
If I can find a way to make, or save a little bit in every aspect of my life, it eventually add up to a more significant amount that means I can buy something nice every so often.

Oh, that’s ok then! You sound very sensible with using credit cards so I think either way you do it will be completely fine!

I was thinking if you can lock it for 2 years maybe get a fixed term savings account? Some banks offer up to 2.8% AER for 1-2yrs fixed term: like these ones

I wouldn’t risk it on stocks though, especially with what’s going on with the world :sweat_smile: