Car loan or savings - affect mortgage application?

LadyBetty

I am changing my car and am not sure what is the best way to pay for it - use savings or finance plan with the garage? I would usually just pay outright with savings but am facing uncertain cash flow in the coming months so feel that holding onto some savings would be a prudent contingency plan.

Would having car finance repayments affect my chances of getting a first time mortgage (something I intend to apply for in the coming year provided cash flow becomes more stable)? Would it impact the amount the bank would lend me?
Or does it look good to show that you are able to make repayments each month?
I am hearing different opinions on the best course of action

Odelay

Can you avoid buying the car for a while? Is a need or must? Best option of all is to look at deferring the purchase. I know we all need to get about but maybe it could be done without raiding your savings too hard?
Btw both can affect your mortgage decision, they take both into account, not sure which is worse, someone here will advise on that.

LadyBetty

Thanks Odelay yes it's a necessity to change the car now, I have been putting it off for 2 or 3 years and the old car is just costing too much at this stage, I am not willing to go through the NCT with it again. I think the clutch is starting to go now so definitely want to trade it in asap.
Would have always thought car financing was a no-no but in my current circumstances it could free up more of my cash.

Odelay

LadyBetty wrote: »

Thanks Odelay yes it's a necessity to change the car now, I have been putting it off for 2 or 3 years and the old car is just costing too much at this stage, I am not willing to go through the NCT with it again. I think the clutch is starting to go now so definitely want to trade it in asap.
Would have always thought car financing was a no-no but in my current circumstances it could free up more of my cash.

You might want to have a chat with the lads in the motors forum. The clutch may not be that expensive to fix (got mine done on last car two years ago for €450), talk to your mechanic. NCT repairs aren't always that expensive and with the car you have at least you know it.

If you bought a car on loan how much would the interest cost?

BTW I'm driving a car that I bought and my mechanic fixed a few issues for €1,500 total, should be good for 30k miles, only problem with it is the digit on the reg, it needs a "1" fixed, it says 02 D instead of 12D. Are you sure you're not on the number chasing game? (with all respect)

LadyBetty

Haha no I'm not bothered by reg numbers, my current car is a 00 & have it 9 years, previous car was 1987 reg & had that 5 years! I am not willing to keep spending on current car tbh really need a change & will be doing more driving soon as relocating to a different part of the country.

Rate of interest with the garage is 7.9%.

Odelay

LadyBetty wrote: »

Haha no I'm not bothered by reg numbers, my current car is a 00 & have it 9 years, previous car was 1987 reg & had that 5 years! I am not willing to keep spending on current car tbh really need a change & will be doing more driving soon as relocating to a different part of the country.

Rate of interest with the garage is 7.9%.

OK, fair play to you for not worrying about reg numbers, wish you "well wear" with your new motor, sounds like you have your head screwed on.

I hope someone here can help you with the financial decision. Can someone better informed than me help her???

Sean.

okiss

If you have a car loan the bank will take into consideration that you are paying x amount a month on a car loan and therefore you will only be in a position to pay y amount a month towards a mortgage.
This is an example - you are paying €300 pm on a car loan so therefore you can only pay €500 a month on a mortgage. The banks will stress test any mortgage to see if you could pay an interest rate of 2% or 3% higher than they are at the moment so you need to take this into consideration.
I would buy a car for €2,500 to €3,500 from your savings and then pay this money back into your savings as soon as possible.
I would use the budget planner on the nca.ie website to get a better picture of you income and outgoings and to see where you could save money.
There are a number of different things here on how to save money also.
I would look at your bank statements and make sure all dd are paid on time, that you don't have an overdraft and also there is money in the account at the end of each month.
Set up a standing order to a regular savings account each month from your bank account so as soon as you get paid your putting at least €300 a month into this account. Also if you are using your bank account for gambling stop doing this.
I would keep all bank statements, p 60's, rent books, saving account details, rent books ect.
You don't want any loans, credit card debit ect. and you need to show that you can afford the mortgage you are looking for. They won't take into consideration that you plan to rent out a room any longer.

smcgiff

As per above, the bank will see any other financial commitment as a negative.

LadyBetty

Well thanks for the replies, I have decided to avoid the garage finance route based on your sensible advice.
The salesman made such a compelling argument for financing, so I'm very glad I threw the question up on boards before acting rashly!

Car tax is up end of April so surely I will get the right motor at the right price by then...:)